VAT-free Imports From The Channel Islands - Business Response

Business Response

Some UK businesses have claimed that this kind of VAT avoidance is potentially "abusive", in terms characterised by the 2006 Halifax Judgement. VAT abuse is defined as transactions that, "notwithstanding formal application of the conditions laid down by the relevant provisions of the Sixth Directive and of national legislation transposing it, result in the accrual of a tax advantage the grant of which would be contrary to the purpose of those provisions. Second, it must also be apparent from a number of objective factors that the essential aim of the transactions concerned is to obtain a tax advantage."

In 2005 a group of UK retailers with the help of the UK trade body the Forum of Private Business gave evidence to the All-Party Parliamentary Small Shops Group. This group published in 2006 a report High Street Britain 2015 that covered many issues affecting retail in the UK. In relation to LVCR and the Channel Islands it recommended that "The UK Government should immediately apply the lowest threshold applicable for the relief of low value consignments permissible in the directive, which is currently 10 euros (approximately £7) – this would eliminate the vast majority of exploiting trade almost immediately" it also recommended that "The enforcement, by government bodies like Customs and Excise, of VAT should be reviewed to ensure a level playing field"

Another group of retailers, called the Retailers Against VAT Abuse Schemes (RAVAS) have filed a complaint with the EU Directorate of Taxation, alleging that the UK Government has breached the Directive covering LVCR by failing to take action to stop abuse. They say that the UK Government could have stopped the growth of LVCR trade by taking legal action against major retailers under Halifax, or by using its discretion to lower the threshold to €10, remove mail order goods from the relief or request the Channel Islands lose the right to benefit from the relief in relation to DVDs and CDs which is known as a 'derogation'. The retailers argue that by failing to stop abuse of LVCR the UK Government is in breach of the Principal VAT Directive (previously the Sixth VAT Directive) which states that the conditions for EU tax exemptions such as LVCR should be laid down "for the purposes of ensuring the correct and straightforward application of those exemptions" and to prevent any "possible evasions, avoidance or abuse".