An End in Sight to Tax Evasion by German Online Retailers

Germany is cracking down on tax evasion by sellers on Amazon and eBay. (Image:  pixabay /  CC0 1.0)
Germany is cracking down on tax evasion by sellers on Amazon and eBay. (Image: pixabay / CC0 1.0)

Germany is cracking down on online tax evaders on platforms like eBay and Amazon after losing millions of VAT revenue. To patch the loophole, the government has drafted a bill against such activities and passed it into law.

The new German law on VAT

The convenience brought by online platforms such as Amazon and eBay has allowed retailers to expand the reach of their consumer (B2C) goods at a low cost no matter where they are. However, this has affected the German market as VAT revenues slip through the government’s fingers. According to sources, the country’s treasury is losing 100 million euros every year because of retailers from other countries evading VAT. This is due to the services provided by the online platforms, such as taking care of the shipping, storage, and facilities, not to mention the minimal information they provide to German tax authorities. These things make it hard for German officials to trace the transactions made by sellers.

In a bid to prevent sellers operating through Amazon or eBay from evading tax, the German government has drafted a bill where the platforms are expected to procure full identification of third-party traders, such as their names, fax numbers, and addresses. The bill took a long time to be passed into law and took effect on 1 January this year. With the new law in place, all physical goods sold to German consumers are now subjected to VAT of 19 percent, whether it came from the country, from member states, or from outside the country (in which case, the goods are subjected to the original country’s VAT).

All goods sold by sellers through Amazon will now be subjected to VAT. (Image: pixabay / CC0 1.0)

All goods sold by sellers through Amazon will now be subjected to VAT. (Image: pixabay / CC0 1.0)

Even if the seller is not an established business, the new VAT rules still apply. If online platforms fail to meet the regulations, they are obliged to shoulder the unpaid VAT of their registered online sellers. Amazon has stated that they fully support VAT compliance and will block sellers who don’t follow the tax rules. All sellers are now required to submit a VAT certificate, both on eBay and Amazon, which identifies them as tax registrants in the German market.

The catalyst of the decision

If it wasn’t for the sellers in the far east, particularly, those operating in China and Hong Kong, the bill would not be conceived. According to last years estimates by Amazon, there are 24,000 sellers from China and Hong Kong on their platform.

Sneakers from China used to be priced less in the bill before the new tax rules. (Image: pixabay / CC0 1.0)

Sneakers from China used to be priced less in the bill before the new tax rules. (Image: pixabay / CC0 1.0)

“The e-commerce platforms pampered the Chinese vendors with turnkey solutions that made entering the market here very easy, but, astonishingly, they failed to convey any information on VAT… It was not until last December when we threatened the platforms with confiscation of goods in their warehouses that they canceled the accounts of some Chinese vendors, which then led to a surge in the number of Chinese vendors who properly registered themselves with the Berlin tax office,” Eva Henkel, Spokeswoman of the Berlin finance department, said in a statement (Nikkei Asian Review).

T-shirts and sneakers that were ordered online for prices like 30 euros to 49 euros and charged that amount on a consumer’s credit card often arrived in Germany with a price tag of fewer than 22 euros. Moreover, only 1 out of 10 online Chinese vendors selling in Germany are actually paying VAT properly. The new rules are expected to resolve these issues.

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