Tax-Avoiding Online Retailers Not Welcome In Guernsey, Either

by Jason Gorringe, Tax-News.com, London

03 March 2006

Online retailers seeking to benefit from a tax arrangement in place between the European Union and the Channel Islands learned this week that they will no longer be able to take advantage of the provision in either Jersey or Guernsey.

Earlier this week, the Jersey government pledged to introduce measures that will make it harder for large retail groups based in the United Kingdom to exploit a 'loophole' in value added tax laws to sell goods VAT-free in the EU.

The "low-value consignment relief" provision allows retailers to sell goods such as CDs, DVDs, computer games and contact lenses that are valued at under GBP18 VAT-free from Jersey and Guernsey back to the UK through websites. The Channel Islands are not part of the EU for VAT purposes and, therefore, goods under this value sent by mail order from the Islands are exempted from VAT.

According to a report in the Financial Times, a new licensing system for UK companies operating through Jersey-based distributors will mean that these firms must withdraw from Jersey within a year.

The FT quoted Philip Ozouf, Jersey's Minister for Economic Development, as suggesting that the policy would "catch most of the activity," although retailers possessing licences without time limits would be allowed to remain.

The crackdown will not affect Jersey-based CD exporters with local management and sales operations, the FT reported.

The decision was welcomed by small business groups, which had been adversely affected by their larger competitors undertaking such practices. The Forum of Private Business, however, stated on Tuesday that:

"There has been no commitment from the Guernsey Government to stop the practice happening there and HMV is reportedly selling 100,000 CDs a week to the UK from Guernsey."

Reports in the UK media have suggested that this is no longer the case, as the Guernsey authorities have announced that they will not grant permission for distributors acting for online retailers located in the United Kingdom to establish warehouses in Guernsey. According to the Financial Times, the Guernsey government also revealed that it will not grant housing licences for the employees of such operations.

Speaking the BBC with regard to the move, Guernsey's Deputy Minister for Commerce and Employment, Carla McNulty-Bauer explained that:

"Our priority is to ensure that our local, home-grown businesses that are Guernsey-friendly are looked after and given the best advantage possible. We do not want those companies to be prejudiced against in any way."

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