Brussels is this week expected to confirm a crackdown on hordes of overseas firms that are together shipping 150m small parcels a year to European online shoppers without charging VAT – often illegally.
The move comes as Europe’s airports, rail freight terminals, and shipping container ports are deluged by record numbers of parcels ordered by Christmas shoppers on sites such as Amazon and eBay.
The boom in overseas firms selling goods to Europe has been accompanied by an explosion in VAT fraud. In total, the European commission estimates €5bn a year is now lost in tax revenues – a figure that is rising annually at 15-20%.
Many import firms are illegally underdeclaring the value of goods as they arrive in the EU, knowing that customs officers are overwhelmed and unable to make proper checks.
A study published in May by Copenhagen Economics estimated that more than 60% of goods arriving into the EU with some postal carriers were failing to comply with VAT declaration rules.
As well as fraudulent underdeclarations, some importers are able to legitimately avoid VAT if their goods are of low value (£15 or less in the UK).
There are about 150m such parcels arriving in Europe each year, all of them purporting to qualify for this low-value VAT exemption. Of these, however, many are believed to be fraudulently declared of low value.
On Thursday, the commission will promise to bring this heavily exploited VAT exemption to an end. However, phasing it out will not be possible for at least another five years, when new software has been developed and deployed.
By then, conservative Brussels forecasts estimate the number of parcels likely to be arriving in the EU, and purporting to be of low value, will have doubled to 300m.
Separately, the commission is expected to confirm on Thursday that European VAT rules will be amended to allow member states to bring VAT rates for ebooks, online magazines and newspaper apps into line with hard-copy equivalents.
In Britain and several other EU states, books and newspapers are currently zero-rated for VAT while online versions are not. A change in this area could make ebooks and online news subscriptions much cheaper.
