Lost tax revenue may trigger authorities to re-visit their de minimis threshold

01/05/2024

The Loadstar is running a series of reports on the ecommerce sector, which has been driving growth in air cargo. But are there clouds on the horizon? Yesterday, we looked at de minimis thresholds; today we investigate which governments may be looking to change them

The rising number of global ecommerce imports could lead to governments reforming their de minimis thresholds, as some companies attempt to fly under the tax radar.

Countries receiving imports have de minimis thresholds, a minimum value below which no customs duties are levied. Shipments with a declared value below the de minimis threshold may be exempt from these taxes, while those above the threshold are subject to taxation.

In the EU, the de minimis threshold is €150, in the UK it is £135 and in the US $800 – which increased from $200 in 2016 with the Trade Facilitation and Trade Enforcement Act.

A UK HMRC spokesperson told The Loadstar: “Our customs and tax regime for low-value imports balances reducing burdens for businesses and consumers buying goods from overseas with impacts on domestic producers and retailers.”

Indeed, when a government establishes its de minimis values, there is a fine line between encouraging domestic companies and impeding importers and consumers.

The high US customs de minimis threshold is being re-examined by Congress, due to concerns about its potentially negative impact on domestic industries and the possibility of abuse by those exporting to the US, particularly China.

Data from the US Customs Border Protection (CBP) showed 880.2 million de minimis bills of lading from air last year, and for just Q1 this year, 332.5m already recorded.

The Loadstar previously reported that this represented $67bn of lost tax revenue.

A recent Bloomberg Tax study said: “The US’s contentious trading relationship with China has been a major source of low-value, high-volume imports into the United States. Critics argue that the de minimis rule operates as a loophole that can be exploited to circumvent trade restrictions and tariffs, thereby undermining US trade policy and hurting domestic industries.”

However, even when a government posts a de minimis threshold deemed to be fair, companies may seek to dodge this.

A spokesperson from FPS Finance Belgium told The Loadstar there was a possibility ecommerce companies were breaking shipments to get through de minimis without paying, and countries could be losing out on VAT because of this.

While they could not place an estimation on how much, the spokesperson said: “When looking at the average shipment value, the cases are few. We do analyse the declaration data at all times to try and detect this.”

Last year, Belgium was found to be the centre of a customs fraud by Chinese exporters who avoided paying €310m in tax by claiming that goods entering through Liege Airport were destined for other EU countries. They created fake companies in France, Germany, Hungary, Italy, Poland and Spain and used private customs agencies in Belgium that declareed the final destination of the goods was in other member states.

EU Customs Procedure 42 exempts importers from paying VAT in the country of importation if the imported goods are subsequently transported to another EU state. The end-consumers were charged the VAT, which boosted profits for the seller.

Further, customs duties are typically assessed based on the declared value of the goods – which assumes the ecommerce merchant will accurately declare the value on customs forms. The EC found that up to 65% of such parcels entering the EU were being undervalued to avoid or reduce import duty.

The spokesperson from Belgium’s FPS finance pointed out that “without a de minimis, the motivation to do this is no longer present”. It highlighted the 2023 proposition for the EU Customs reform where one of the proposed changes is the abolishment of the €150 de minimis for duty relief.

“The reform responds to the current pressures under which EU Customs operates, including a huge increase in trade volumes, especially in e-commerce,” states the EC proposal. If it is adopted, it will enter force in 2028.