BFM BUSINESS INFO. Back Market accuses Cdiscount of VAT fraud of 500 million euros

The reconditioned smartphone site denounces the illegal practices of sellers at its rival to the tax authorities. The war rages between the two e-commerce platforms.

Some live in the heart of Paris, Place Vendôme, between luxury hotels, jewelers and… the Ministry of Justice. Like a snub to the French authorities. Others prefer peripheral countries in Europe: Cyprus, Poland or Estonia. Behind these shell companies or simple mailboxes hide sellers of refurbished iPhones who flood e-commerce platforms.

Except that in recent months, the Back Market specialist has suffered from competition from Cdiscount, which it considers “unfair”. At the start of the year, the company put its rival on notice to “comply with VAT regulations”. Failing to have been heard, at the end of October she sent a letter to the General Directorate of Public Finances (DGFIP) to denounce these actions.

In this letter that BFM Business obtained, Back Market “suspects that the reconditioned smartphones put forward by the company Cdiscount are the result of VAT fraud”. She estimates that this generates a shortfall of 500 million euros for public finances.

No VAT for lower prices

The company spent several months spying on its competitor's site to find illegal sellers. They are established in Europe through shell companies or domiciliation companies. Sellers declare themselves European to e-commerce platforms, which therefore have no obligation to collect VAT from them. But for their part, they obviously don't pay it. “Non-payment of VAT allows these sellers to display lower prices,” explains Laurent Lamoureux, president of the interprofessional union for the reconditioning of computer and telecom equipment (Sirrmiet). The prices of the best-selling iPhones are 20% to 30% cheaper than on Amazon, Fnac or Back Market.

These sellers are taking advantage of a legal loophole. The law requires platforms to charge VAT for those based outside the European Union. On the other hand, those who are domiciled in Europe are required to pay it directly to the tax authorities when they sell in France. This regulation provides an avenue for fraud. When contacted, the DGFIP did not respond to us and Back Market did not wish to comment further than the content of its missive.

“Cdiscount's policy on VAT collection is in full compliance with the regulations in force, defends a spokesperson for the platform. In the event of suspicion of VAT fraud, we ask the seller concerned to provide proof of its tax compliance, failing which, we will automatically charge VAT on its sales.

Cdiscount sales increase

The whole problem is there, Back Market criticizes Cdiscount for not checking whether the seller is indeed European. At the start of the year, the tax authorities called all e-commerce players to order to ask them to step up their controls. Amazon, Fnac and Back Market have “cleaned up”, explains a good expert on the matter. The reconditioned telephone site now asks for supporting documents: invoices, Urssaf declarations or leases for their offices. He “expelled” several sellers who today find themselves partly at Cdiscount, which the e-commerce site denies.

“A general French leader plays with the lines and will ultimately have to comply with the rules, recognizes Laurent Lamoureux. The profession is fighting for marketplaces to collect VAT from all sellers regardless of their nationality “. Cdiscount also assures that it is “favorable to this system”.

In recent months, Back Market has lost 10% of market share in France… which Cdiscount seems to have recovered. The Casino subsidiary recorded an astonishing 8% increase in sales in the third quarter for its marketplace activities. They fell by 4% in the first quarter and 2% in the second. The refurbished smartphone market is growing. Three to four million are officially sold each year in France. The parallel market would weigh between 25% and 30% and the State would be the big loser.