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December 03, 2012

eBay's Tax Investigation in Europe

By Brittany Walters-Bearden, TMCnet Contributor

Great Britain and Germany are concerned that eBay (News - Alert) may not be paying its proper share of sales tax; due to the fact that they have headquartered themselves in the tiny country of Luxembourg, where the sales tax rates are the lowest in the European Union. Germany feels as though it has lost out on a potential $580 million dollars in sales tax revenue, while Great Britain feels it may be losing out on $500 million.

While the giant worldwide corporation is only maintained in Luxembourg by a staff of nine people, they are allowed to charge a lower rate of Value Added Tax (VAT being the European version of sales tax) to customers. Many of its sales come from countries such as England, where the Value Added Tax can mount up as high as 20 percent. However, these taxes are not received in Luxembourg, as eBay has them routed through Switzerland, where the corporate taxes are the lowest in the European Union.

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Even though the European Union allows companies to locate themselves in Luxembourg and charge Luxembourg VAT prices, individual tax firms can challenge the validity of companies trying to take advantage of the system by establishing subsidiaries in Luxembourg in the domestic courts. They can challenge the validity on grounds that that the subsidiary does not have enough staff or assets invested to make them a legitimate company in Luxembourg.

The question coming into view is eBay’s use of two different systems: Luxembourg’s Value Added Tax and Switzerland’s corporate tax breaks. Germany and Britain now want their tax people to look into the possible misconduct by eBay.

Margaret Hodge, a member of British parliament and the chairman of the Public Accounts Committee that monitors government financial issues, said of the issue, “I hope that HMRC (UK tax authority Her Majesty's Revenue and Customs) takes note ... and takes prompt action. I will be seeking assurance that they are, next time we take evidence from HMRC.” HRMC officials are expected to testify to the Public Accounts Committee during their investigation into tax issues.

eBay says that it has informed HMRC of all of its arrangements and that it has met all the appropriate requirements. A spokesman said, “In all countries and at all times, eBay is fully compliant with national, European Union and international tax rules including the remittance of VAT to the appropriate authorities."

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Edited by Brooke Neuman
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