Amazon jolted

Germany cracks down on online tax cheats

Amazon, ebay, taxes
A worker sorts packages at Amazon's new distribution center near Berlin. Source: Reuters

The German government has launched a crackdown on a problem that has long bedeviled U.S. states – online retailers who don’t pay any sales tax.

The problem in Germany is with Chinese traders, who make up about one-third of transactions on platforms such as Amazon and Ebay. One trading expert told Handelsblatt that Germany could be losing €1 billion ($1.2 billion) a year in revenues.

At the height of the Christmas shopping season, tax authorities from the Neukölln borough of Berlin, which is responsible for the tax registration of Chinese companies selling goods in Germany, ordered an Amazon warehouse to sequester goods worth millions of euros being stored for nearly a hundred Chinese merchants, meaning that Amazon is prohibited from removing them from the warehouse or reselling them until the merchants pay their tax debt. Amazon also froze the traders’ accounts with the platform.

“There should be a regulation in Germany that puts the liability on the platform operators.”

Thomas Schäfer, finance minister of Hesse

“We estimate that 99 percent of Chinese retailers on the German online platforms do not pay sales tax on their goods sold,” said Mark Steier, a former Amazon trader who is now a consultant on online commerce. Official statistics appear to support his assertion: While more than 5,000 Chinese dealers offer their goods on Amazon, fewer than 500 have ever submitted a sales tax return to the tax office.

The problem in Germany is a bit different than in the US. All European countries have what is called a value-added tax (VAT) that corresponds to a sales tax. It differs by country but not by individual states, as in the US. In Germany, the VAT on most goods is a whopping 19 percent, more than double the amount levied in most American states. In Europe, VAT is not shown separately but as part of the price, so consumers really can’t tell if it has been added or not.

In 1992 the US Supreme Court ruled that third-party sellers on Amazon don’t have to collect sales tax unless they have a brick and mortar presence in the states, a decision that many states hope to see overturned, especially since consumers spent an estimated $100 billion online during the past Christmas shopping season.

In Germany, online traders have always been required to pay sales tax, but the process of tracking down merchants outside the country proved too cumbersome. But German officials are now studying a British law that makes the sales platform equally responsible for payment of VAT to see if that would force Amazon and other online retailers to collect taxes.

04 p14 Avoiding the tax man-01

Amazon decline to comment on the order, but it did confirm to Handelsblatt that it had responded to a request to close the Chinese merchants’ accounts. The accounts “were blocked at the request of the German tax office,” it said, adding that inventory stored with Amazon by these merchants could no longer be accessed because of VAT rules violations.

For several years, angry German online retailers have bombarded the tax office with complaints about Chinese competitors undercutting them because they don’t include the hefty VAT in the purchase price.

Faced with an image problem, Amazon has been keen to appear to comply with the tax rules, providing sellers with information on tax liability and tools that traders can use to file a tax return. But they don’t do what Amazon does in the US: directly collect the taxes owed from the consumer. Instead, it is left to each online trader to report their liability and pay.

“We need fair competition and anyone who sells goods in this country, must also pay the correct sales tax,” said Stefan Genth, chief executive of the German Trade Association.

Thomas Schäfer, finance minister of the German state of Hesse, said he is pushing for the adoption of a withholding tax for online sales, so that Chinese merchants would receive only the net price after tax and the platform such as Amazon would pay the tax directly to the tax authority

Mr. Schäfer noted that in the UK, Chinese traders cannot sell their merchandise online without first registering with the tax authorities. If they don’t pay the platform is held liable.

“Only through the platforms is it possible for fraudulent traders to make sales,” he said. “There should be a regulation in Germany that puts the liability on the platform operators.”

Florian Kolf leads a team of correspondents who cover the trading and consumer sector for Handelsblatt, Volker Votsmeier is an investigative reporter with Handelsblatt, and Charles Wallace is an editor with Handelsblatt Global in New York. To contact the authors: votsmeier@handelsblatt.com, kolf@handelsblatt.com and c.wallace@extern.handelsblatt.com.

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