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HMRC survey of Chinese cross-border sellers highlights need for quality data
Chinese cross-border sellers largely depend on marketplaces and third-party agents to manage their compliance, according to a new report.
HM Revenue & Customs (HMRC) commissioned in-depth interviews with 30 Chinese online sellers for the report entitled ‘Knowledge and Attitudes of Online Sellers in China to Tax Compliance’.
The interviews sought to ascertain the views of Chinese cross-border sellers regarding their customs and tax obligations when selling goods to the UK market.
The key findings from the report included:
- There were good levels of awareness of recent regulatory changes including the abolition of the VAT de minimis in the UK, but many lacked a detailed understanding of the changes;
- Chinese online sellers were “mostly passive in their efforts to understand their UK tax and customs matters”;
- There was a “common assumption that unless otherwise notified, they (sellers) were acting in compliance with the relevant UK tax and customs obligations”;
- Changes to UK tax and customs systems were commonly viewed by sellers through a ‘Brexit lens’;
- Sellers felt there was a lack of “reliable information in Chinese” regarding tax and customs changes in the UK;
- There was a desire for HMRC to provide sellers with trusted information translated into Chinese;
- HMRC encouraged to communicate with Chinese sellers via their preferred channel of WeChat;
- Almost all sellers chose to sell via online marketplaces (OMPs) with one more dominant than others with customer communications and fulfilment handled by the OMP;
- Most sellers interviewed also used tax agents and shipping agents “with little evidence that sellers undertook rigorous due diligence to check the work of their agent”;
- The term VAT representative was unfamiliar to most sellers – only a small number were able to distinguish between the role of a VAT representative and a tax agent;
- Britain leaving the European Union was said to have complicated shipping, customs clearance and fulfilment. Many sellers specifically mentioned Brexit as an additional concern or problem for their business.
“Although this report is focussed on the changes as a result of the UK removing its VAT exemption on low value items as of January 1, it could just as easily be applied to all countries and other major regulatory changes we are seeing.
Most recently, this includes the abolition of the VAT de minimis in the EU and the launch of the Import One-Stop Shop (IOSS) intended to simplify the payment and declaration of VAT on items with a value of less than EURO 150 which is almost identical to the VAT changes in the UK on January 1, 2021.
It is positive that the Chinese online sellers interviewed recognise the importance of compliance, but there are significant risks to outsourcing compliance responsibilities to third parties.
Online sellers need to have robust systems in place to ensure that they are continually auditing their OMP and other providers such as tax and shipping agents. Assuming everything will be okay is never a good approach and you cannot delegate your legal responsibilities.
The single biggest requirement for seamless cross-border eCommerce trade today is having the right product and complete and accurate shipment data.
Complete and accurate product descriptions, HS6 codes and import and export codes are vital in complying with the ever-changing global regulatory environment as are the need to screen for prohibited and restricted goods and denied parties.
In this area, the online seller has a critical role to play in ensuring its data is of the highest possible quality if it doesn’t want to encounter delays with customs clearance, shipment confiscation and additional costs.
We have many examples where the quality of data being provided on consignments is incomplete and inaccurate. This is a global problem, but particularly acute in China and wider Asia given the region’s dominant status in the cross-border market.”
– Martin Palmer, Chief Content & Compliance Officer, Hurricane Commerce
You can read the HMRC report in full here.