Firstly, it’s important to understand what we mean by distance selling. Distance refers to the sale of goods from one EU member state to a customer in another EU member state. This includes online sales, mail order sales, and sales made over the phone. When goods are sold in this way, they are subject to the VAT rules of the country in which the customer is located. For example, if a UK-based seller sells goods to a customer in France, they must charge French VAT on the sale.
The problem arises when sellers deliberately avoid charging the correct VAT on their sales. This is known as distance selling VAT fraud. The fraud typically involves a seller based in one EU member state making sales to customers in other EU member states, but failing to charge or pay the correct amount of VAT. This can result in significant losses to the tax authorities of the customer’s country, as well as giving the fraudulent seller an unfair advantage over their law-abiding competitors.
The reasons for distance selling VAT fraud are varied. In some cases, sellers simply do not understand the VAT rules that apply to their sales. In other cases, sellers deliberately set out to defraud the tax authorities. This can involve the creation of multiple shell companies, the use of fake invoices, and the deliberate misclassification of goods to take advantage of lower VAT rates in certain countries.
The UK government has recognised the seriousness of distance selling VAT fraud and has taken steps to combat it. In 2016, new rules were introduced requiring online marketplaces to take more responsibility for ensuring that their sellers are paying the correct amount of VAT. These rules make it easier for tax authorities to identify and pursue sellers who are engaged in VAT fraud.
In addition to this, the UK tax authorities have been working more closely with their counterparts in other EU member states to share information and intelligence about sellers who are suspected of engaging in VAT fraud. This has resulted in the prosecution of several sellers who have been found to be deliberately avoiding paying the correct amount of VAT on their sales.
However, the problem of distance selling VAT fraud is not going away. As e-commerce continues to grow, it is likely that the scale of the problem will increase. This is why it is essential that sellers are aware of their responsibilities when it comes to VAT, and that they take steps to ensure that they are complying with the rules.
Ultimately, it is up to individual sellers to ensure that they are paying the correct amount of VAT on their sales and avoiding engaging in fraudulent behaviour. By doing so, they can help to ensure a level playing field for all businesses and protect the integrity of the tax system.