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In an effort to minimise VAT evasion, reduce administration and level the playing field for EU traders, the European Commission (EC) wants to abolish the Low Value Consignment Stock Relief (LVCR) scheme.
It’s estimated that the EU is currently losing as much as €500m per annum to non-EU sellers of goods who are able to use the scheme to their advantage, and are suspected of reducing the value of the shipments that they import into EC member states.
The EC has set quite an ambitious deadline of 1 January 2016 to introduce legislation that would see the VAT exemption removed for the importation of small consignments from non-EU suppliers.
The legislation would be welcomed by EU retailers, as it would resolve the issue of unfair advantage from competitors - particularly Chinese businesses.The closing of the LVCR loophole is expected to result in EU customers of overseas sellers being required to pay more, due to the items no longer being VAT free.
As was demonstrated in 2014 when the UK removed the LVCR scheme from businesses registered in the Channel Islands, governments would see a cost benefit (HMRC estimates the loophole was costing the UK £140m annually) and tax authorities would be relieved of having to track and prosecute international sellers.
Need more information? Contact our VAT team.