560 million Chinese parcels a year reach Europe without import VAT

Asian online retailers avoid customs duties and import sales tax by exploiting problematic EU exemption limits with deliberate false declarations

560 million Chinese parcels a year reach Europe without import VAT

More than 10 percent of Austrian retail sales are already generated online, which corresponds to around EUR 6.8 billion. The problem: half of this online turnover does not arrive at the domestic market, but flows abroad. Particularly problematic is the cross-border business with Asian traders and platforms, especially from China. Currently, 560 million parcels per year are sent to the European Union via Alibaba (AliExpress). 97 percent of these shipments are completely duty-free and VAT-free in the EU and a large part of the remaining 3 percent, at least without import duty.

This massive tax evasion is made possible by the EU VAT exemption for postal deliveries from third countries under EUR 22 value of goods and by the duty-free limit of EUR 150. Many Asian online retailers use these exemptions with all legal and more or less legal means, for example: deliberately and actively declaring parcel shipments wrong. For example, sneakers when shipped to the EU are charged with the actual, over the EUR 22 exemption limit value to the consumer, but declared at a much lower value to avoid customs and import sales tax.

“The dimensions are enormous: around 9 million shipments per day go from China alone to global cross-border trade, and a quarter of those to Europe. In total we are talking about 560 million shipments a year for which no VAT is paid in Europe – a massive distortion of competition. On the one hand, the state loses millions of euros in tax revenues, on the other hand, domestic retailers are forced out of the market, as the Asian competition can offer their low-cost products through these tax advantages even cheaper” explains Rainer Will, Managing Director of Handelsverband, the Austrian retail association.

Therefore, platforms should pay the sales tax on B2C sales directly to their trading partners from third countries, as has been the case in the UK for over a year. The British authorities estimate the additional tax revenue for 2016 at one billion pounds

The EU has recognized the problem: the tax exemption for the import of small consignments below EUR 22 value of goods from third countries is to be abolished – but only as of January 1st, 2021. This would increase the VAT revenues of the EU Member States by EUR 7 billion per year and significantly improve the conditions for competition for currently disadvantaged European companies.

Given the annual growth rates of 20 percent in the Chinese cross-border trade, the planned abolition in four years comes unfortunately much too late. Switzerland, where AliExpress already ranks among the ten largest online shops with sales of CHF 130 million, is still much further ahead as a non-EU member: stricter regulation of Asian online platforms is to be implemented in early 2019, thus ensuring the correct declaration of each individual package

“Unfair tax rules that bring cheap goods into the EU must finally be abolished. Every domestic SME will be burdened with corporate income tax, while international online traders from third countries without a physical presence in Austria will be able to avoid it. The introduction of the ‘digital permanent business establishment’, which was already announced by Federal Chancellor Sebastian Kurz, could quickly remedy this situation and prevent unjustified profit shifts. Thus, the additional price advantage would be defeated, domestic jobs in the retail sector would be protected and tax revenues in Austria would rise,” appeales Harald Gutschi, Vicepresident of the Handelsverband and Managing Director of the UNITO-Group, to the new Austrian federal government.