Bluegrass Lass

I’ve got a question about the legitimacy of a proposal that someone has approached my mom about. She owns Company X here in the US. She sells primarily on Ebay, and is now a powerseller. A similar company, Company Y, is located in the UK (specifically Scotland) – they sell products similar to my mothers’ (they are also powersellers). Well, they have approached my mom about setting up a relationship/partnership. She would sell them bulk quantities (let’s say 50 items) of Product A, marked as ‘gifts’ or ‘commercial samples’, which they would then turn around and sell to their customers. They have stated that have set up similar partnerships with other US companies, and it has been beneficial to them such that it helps them to avoid paying VAT. I think this is the primary reason they have approached my mom.

Now obviously my mom is going to make a profit, and I’m sure they are going to make a profit, but I’m concerned about this whole business about avoiding VAT. They’ve already stated that any duties/customs fees that arise would be covered by them, so that’s not a concern. I’m just more concerned with any potential repercussions for my mom aiding them in avoiding VAT. Is there a risk here that she could get fined, etc, for doing this? What UK government agency do I need to contact/research to find out more information?

Thanks!

chicagojlo

It's mail fraud to mark something as a gift when in fact it is not. You could try Customs and Excise as they deal with import duties.

Furthermore, if she would sell to them through Ebay, the value marked on the package for customs would be all she would be able to insure them for, and then if/when the merchandise got lost she would still be liable to refund the amount she was paid for them. It is a fairly well-known scam in the purse world of promising to be 'on the hook' for something and then invoking your Ebay rights to basically defraud the seller. The seller is always responsible no matter what.

meauxna

You might look at cbp.gov to see what the implications are for her in falsifying regular shipments to them by declaring them as gifts/samples. Or is this a one-off sort of deal?
Maybe they would give references for thies other partnerships that are already doing this?

I would be very 'antennas up' if I were Mom. A little larceny is good for the soul. A lot can be hard on the bottom.

chicagojlo

Especially if your mom is not (yet) a USC...

Bluegrass Lass

Mom is a 'native' American so no issues there. As I understand it, the goods sold to this company would be outside of Ebay. I guess this other company contacted my mom because they saw her selling on ebay. My mom would basically be a distributor to them. Paypal would be used to send payments. And I don't think this is going to be a one off - there would be many shipments over time.

I thought it was mail fraud to label something 'samples' when it actually isn't. I guess they aren't approaching the actual mfr of the items because they are trying to avoid the taxes. This is what they said to her in an email:

"The one aspect we are keen to avoid is VAT (Value Added Tax). This tax
does not impact upon anyone in the USA as it is a European Union tax.
Our accountant refers to it as a "neutral tax", in that by helping us
to avoid it, you are not losing out nor taking any risks. We would
never act illegally to "evade" tax, but we can act within the law to
"avoid" taxes... declaring goods as commercial samples or as gifts
simply avoids this additional VAT levy."

Ok, so maybe I'm a little dumb, but isn't 'avoid' and 'evade' basically the same thing...or does this come down to some legal jargon? If all the risk is on them, and nothing can come back on my mom, I don't see a problem with the setup. But methinks there could be risk from her for 'exporting' goods to the UK in an incorrect method.

chicagojlo

From wikipedia:

Tax avoidance is the arrangement of one's legal affairs in such a way so as to minimise one's tax liability, within the law. By contrast tax evasion is the general term for efforts to not pay taxes by illegal means.

I don't have a Customs form in front of me to check but I believe when you sign it you are saying that you have told the truth when filling it out and understand it is an offence to lie.

Englishmum

I know that if one orders items by mail *from* the UK then VAT isn't charged - by the sender to addresses outside the EU countries.

VAT is not applicable to items *sent* from outside the EU (as it doesn't even exist in the US for example) ......but I'm pretty confident that Customs duty would be imposed and with this company/person requesting 'samples' or 'gifts' being marked on the Customs form, this is exactly what they're trying to avoid paying....which is obviously not kosher. The recipient must also declare the VAT on the *value* of the goods he receives to the Inland Revenue (UK tax office).

However.....wouldn't your mother be liable for State taxes (if there is a sales or GST (goods and services tax) if she mails items from her State of residence? I'm not sure what the regulations are for items being sent outside the US though...

If your mother decides to do business with them, she should definitely follow up on references from the other American companies this Scottish company is claiming they're dealing with.

It all sounds a bit dodgy to me.....TBH.

lapin_windstar

This is bollocks. Common bollocks, but still bollocks.

You are required to state the correct value and nature of the shipment on the customs label. They are doing this to avoid paying import duty and VAT on the goods, which they have to pay (not you). VAT is reclaimable from UK taxman if they are VAT registered, but duty isn't. If you fill out the form falsely, you are helping them evade taxation, and you could be prosecuted.

I am sure this is very common, but it's not legal. If it were legal, you would be able to fill out the form honestly!

Englishmum

I was so curious that I've just looked at the website of HM (Her Majesty's!) Revenue & Customs and this is what it says for British importers.....yes they're liable for VAT! There is a reduced rate for imports of antiques, works of art and 'collectors items':

http://www.hmrc.gov.uk/vat/int-imports.htm

He he....I'd be tempted to dob them in (after finding out whom their other US suppliers are...)

hobbes79

Watch out.

My brother actually got into some fairly serious trouble for doing something similar. He was getting Zippo lighters posted to him from the US in bulk, none of which he paid duty on. He then sold these on ebay, most at a pretty good profit. I'm talking a LOT here... it was his main source of income. Until...

Zippo itself sent him a letter to stop doing it. They said you just can't do that, and that Zippo lighters can only be sold in the UK through approved vendors. Tescos got into trouble a few years ago for doing a similar thing with Levis jeans, funnily enough. They also notified the authorities, so he was suddenly paying duty.

My brother, in his wisdom, carried on however.

Zippo then began legal proceedings against him. But they said all proceedings would stop if he withdrew the items from ebay immediately. He of course did at this point. Though he now has about 500 lighters sitting under his bed, none of which he can do much with!

Anyway, lesson to be had... just be real careful with this.

I don't know what "Product A" is, but be aware they could come after your mother and this company in Scotland.

chicagojlo

And your mother could lose her Ebay account.

Socal Local

As part of my job here, I regularly ship equipment back to our UK office for repair and return. This is exempt from duty, but we still frequently find that either further evidence is required to show that this is genuinely the case, or that the duty is charged anyway and we have to follow up to get it back.

As others have said I would be very wary, and be aware that the likelihood of this going undetected if it was done regularly is pretty small.

Bluegrass Lass

From what I can gather, this company is a legal distributor (or reseller) of these Products in the UK as they already sell them in their retail store and on-line. My mom is a legal reseller of these items as well here in the US. So the manufacturers probably wouldn't come after her like your brother, Hobbes. So, IMHO, they are simply trying to avoid VAT by buying direct from her. She would sell them for a bit more than the wholesale price she pays, which would give just enough cushion to allow the UK company to make a profit (since we all know stuff is more expensive there as compared to here).

I would assume that companies in the UK can be audited just like companies here in the US. I would think that if they happened to get audited, and are found to be selling product that no VAT has been paid on, that would cause issues from them, and possibly for my mom? An audtior would probably consider her a supplier to them, and, as such, could she face penalties for selling to this company without a license of some kind? I would also think that their competitors would get suspicious about them being able to sell these items at a lower price (and remain in business), and notify someone to look into it. Well, on 2nd thought, they probably would sell these at competitive prices that way they could make more profit.

And as another poster said, I would think, over time, that the deliveries would not go unnoticed. You can only send so many boxes full of cake toppers (my mom sells party/wedding supplies) marked as 'samples' before the authorities get suspicious.

Thanks for the link Englishmum, I will check it out when I get home. Thanks for the input. I will tell my mom what you all told me, and leave it up to her whether to take the risk or not.

chicagojlo

Don't forget that lying on a customs form is an offence at this end too. If Customs and Excise get wise to it on that end they will pass on the info to the US authorities.

Bob

craigslist, car boot sale, dodgy geezer at the local market, facebook marketing section...