Offshore financial centres agree to end VAT abuse

The governments of the UK Channel Islands Jersey and Guernsey have agreed to take action to end the abuse of their limited VAT-free retailing environment by leading UK retailers. The UK treasury had been unhappy about the use of the Channel Islands for e-mail and mail-order servicing, which was estimated to lose the government about £80m a year in tax revenue.

Tesco, Asda, Boots, Woolworths, Amazon and other retailers have been selling CDs and DVDs free of VAT, under arrangements for tax exemptions on low-value sales. A new licensing system is to be adopted in Jersey requiring retailers to be actually based on the island to be able to avail themselves of the exemption. Companies will be given a year to comply with the new system. Guernsey has said that retailers will not be able to use it as an alternative VAT-free centre. But HMV, which already operates a mail despatch warehouse on Guernsey, will not be affected by the decision.

The decisions by the two islands’ governments were insufficient to satisfy the Forum of Private Business (FPB), which has campaigned against what it sees as unfair competition. FPB pointed out that retailers based in the Channel Islands, such as play.com, operating from Jersey, will continue to sell goods online at lower prices than UK-based retailers.
 
The FPB’s Channel Isles campaign champion, Richard Allen, said: ‘The Treasury must realise that the Channel Islands VAT loophole industry is still alive and kicking. Until the loophole is closed altogether, the UK’s high street shops will continue to haemorrhage money, lose jobs, and ultimately go bust.’

Despite the concession from the two islands’ governments, the FPB’s campaign has now been endorsed by the Association of Independent Music (AIM) and the British Phonographic Industry. Alison Wenham, chief executive of AIM, said that some of her retailer members were likely to be forced out of business as a result of the unfair competition.