Moves are afoot to further close a VAT loophole that exists between the Channel Islands and the United Kingdom which enables certain online music sellers to undercut independent retailers based in the UK.
As much previously reported, a rule exists that enables companies based in the Channel Islands to sell goods under £18 to customers in the UK without paying VAT. As this covers most CD releases, it means that online operations with distribution centres in the Channel Islands do not need to pay VAT on music sales, enabling them to undercut retailers based in the UK itself which do have to pay VAT.
Independent retailers have long objected to this loophole which gives an unfair advantage to large companies who can afford Channel Island bases, as well as depriving the UK government of significant sums of tax income. The British government has made some noises to the effect that it would look to close the loophole, but as yet as done little to do so.
One of the two governing bodies in the Islands, the Bailiwick Of Jersey, under whose jurisdiction the likes of Asda, Tesco and Play.com operate online businesses, has made some moves regarding the loophole, though mainly to stop the expansion of its use, rather than close it altogether.
Now the other governing body, the Bailiwick Of Guernsey, is set to also review the loophole, after Guernsey's Commerce And Employment Office raised the issue with the island's Office Of Utility Regulation, though it is likely their review will focus more on bringing Guernsey inline with Jersey than anything else.
The Office told the Guernsey Press and Star: "It is recognised that what could be considered to be excessive exploitation of this concession may lead to moves to remove or severely restrict its application. The Jersey authorities have come to an agreement with their bulk mailers of DVDs and CDs and the UK Government to avoid this risk. The aim of the review is to identify what action may be taken locally to reduce any risk to established local businesses and enter into an agreement with the UK Government similar to that entered into by Jersey".
According to Music Week, both HMV and Virgin Megastore base their online operations on Guernsey, so could be affected by any changes in the VAT rules there.