Make sure taxman gets eBay cut

Bob Geldof's least favourite online retailer, eBay, is also unloved by the taxman.

While the anti-debt campaigner last week branded it an "electronic pimp" for making a cut out of free Live 8 concert tickets put up for auction on its site, tax authorities in the UK have knocked on the company's doors demanding details of professional traders suspected of using eBay as a means to dodge tax.

EBay, which launched a dedicated Irish site last week, is one of the internet's greatest e-tailing success stories. It is also a happily democratic one. Anyone can sell any unwanted tat and, hopefully, make a profit.

But the spectacular explosion in the value of sales conducted via eBay has alerted tax authorities to the fact that the site and its imitations facilitate millions of black economy transactions all at the click of a mouse.

EBay users worldwide now trade more than $1,344 (€1,110.52) worth of goods on the site per second, based on data from the first quarter of this year. The company has 147 million registered users in 33 global markets.

Most items on the site are on sale for flea market prices, meaning eBay is often regarded as the electronic equivalent of a humble yard sale, where quirky collectables, sports memorabilia and kitchen paraphernalia ("kitchenalia") can be snatched up by online bargain hunters.

But in between the bizarre items like half-eaten sandwiches, advertising space on human foreheads and X-rays of baby dolls, there are serious traders who treat eBay as the main distribution channel for their business.

The company estimates that there are 430,000 people in the US alone who make all or most of their living by selling on eBay.

Sensing that tax revenues were disappearing into cyberspace, the UK's Inland Revenue last year dropped in on eBay's offices to discuss the thousands of traders there who earn their living by selling their wares via eBay but do not pay income tax or VAT. It is also concerned that private individuals making headline profits from certain assets are not paying capital gains tax (CGT).

Even before its eBay.ie launch, the company already has 200,000 registered users from the Republic, although it is thought that only a handful of businesses are currently using the site as part of a low-cost distribution strategy.

In a statement, eBay.ie said it could not verify if its traders were paying tax.

"Transactions that take place on eBay are private between the buyers and the sellers and eBay.ie cannot be aware whether individuals or businesses are paying tax on items. However, all users must agree to comply with applicable tax laws when they register to use the site and are responsible for ensuring they are paying appropriate tax on their earnings," it said.

The trouble is when online traders make the leap from cottage industries to fully-fledged businesses, tax is often the last thing on their minds.

"Most people don't think about the tax consequences of it. But you don't fall out of the Irish tax rules just because you are trading on eBay or anywhere online," says Brian Keegan, head of taxation at the Institute of Chartered Accountants in Ireland (ICAI).

The Revenue Commissioners has the power to consult third parties in its investigations into tax evasion. As sellers on eBay are required to register their personal details, phone number and credit card number, all of which are verified by eBay's anti-fraud department, it is a potentially rich source of information for tax inspectors.

A spokesman for the Revenue said it could not comment on specific operations, but that it did look at a multitude of data in the course of its investigations.

"In the normal course of events, we would expect all transactions to be reported to a Revenue in tax returns," the spokesman said.

If it is investigating CGT compliance, the Revenue has the power to require bodies like auction houses and antiques dealers to give them details of transactions over €19,050. Technically eBay is not an auction house but a mere "venue" for auctions, so it is not clear whether it would be automatically required to hand over information.

But in any case, CGT liabilities won't trouble eBay's low-key, amateur sellers, according to Keegan.

"If you or I were to offload a kids' trampoline on eBay, that won't incur a CGT liability, because it is classed as a wasting chattel. It's the same with cars. No one incurs a CGT bill for selling a second-hand car. Nine times out of 10 they get less than what they paid for it, but even if they did make money, it falls outside the CGT rules."

But self-employed individuals and businesses systematically hawking goods on eBay should beware of future crackdowns. In its statement, eBay.ie said it would welcome a meeting with the Revenue Commissioners to discuss ways in which it could further educate its users.

In other words, "buy it, sell it, love it", as eBay's advertising slogan runs. Then pay the tax.