Nov 02, 2015 06:00 AM EST

Amazon Deemed Liable For Online Tax Fraud? Shuts Down Daily-Deals Services

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Amazon is reportedly liable for online tax fraud if the company fails to investigate traders who are using their sites to avoid sales tax. According to experts, online marketplaces such as Amazon and eBay could be held liable for all unpaid VAT if action was taken against them. The report came amid Amazon's announcement to shut down its daily deals services.

Along with eBay, Amazon could be legally required to detect the tax evasion committed by many of their overseas sellers. However, the companies assured that they make all users aware of their legal obligations.

"If the scale of the fraud is as big as the anecdotal evidence indicates, then we could be talking about billions of pounds," Durham University's Tax Law professor Rita de la Feria told BBC News. "If you knew that fraud was being committed you are liable. If you should have known that fraud was being committed, you are liable as well. This principle means that someone like Amazon, someone like eBay can be de facto tax inspectors. Legally they are obliged to police this."

Based on the latest HM Revenue and Customs (HMRC) figures, £13.1 billion of UK VAT, which is about 11 percent, goes unpaid each year, equating to 40 percent of the UK's overall tax gap. And though not all of that missing money is down to online tax evasion, it could still make up a significant proportion. As per the analysis of thousands of marketplace traders, it was estimated up to £2 billion of VAT is being lost each year.

"The legislation provides a safe harbor defense for intermediaries, up until the point they become aware of that illegality," said Paul Miloseski-Reid, the lead officer on e-commerce for UK Trading Standards for the last nine years. "To keep that defense they need to demonstrate that they acted quickly to stop that illegality in the future. This could be an automatic solution where the VAT number given by the seller is automatically checked against the European database."

Meanwhile, Amazon recently announced that the company will be shutting down its Local register and Local app services. According to Fortune, Local Register, Amazon's mobile credit card processing service meant for small businesses like food trucks and coffee shops that was launched in August 2014, will be closed on Feb. 1. Amazon's Local App, the company's daily deal coupon service comparable to Groupon that was launched more than 4 years ago, will stop its services on Dec. 18.

"Effective December 18, 2015, we will stop selling Amazon Local daily deals," an Amazon spokesperson said, as per Tech Crunch. "We've learned a great deal from the daily deals business and will look for ways to apply these lessons in the future as we continue to innovate on behalf of our customers and merchants."

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