Labour resists calls to close UK tax loophole used by Shein

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The Labour leadership is resisting calls to close a tax loophole used by Shein as the party seeks to encourage the controversial Chinese-founded fast-fashion company to float in London.

Tax campaigners and some retailers have urged Labour to crack down on Shein’s use of the loophole, in which companies can avoid import duties by shipping small packages directly to customers, if the party wins the July 4 election.

However Labour told the Financial Times it had no plans to do so.

Shein’s planned flotation, which could fetch a valuation of about £50bn, would be a big test for an expected new Labour government as the party seeks to balance its centre-left politics with an attempt to burnish its pro-business credentials.

The party argues the London Stock Exchange should welcome a Shein flotation, claiming that a listing in the UK would impose higher regulatory standards on the company than elsewhere.

But UK-based retailers have criticised tax loopholes used by online-only retailers such as Shein and rival Temu, in which they send small parcels directly to customers rather than via distribution centres, for being unfair.

Rachael Henry, head of advocacy and policy at Tax Justice UK, said multinational corporations often took advantage of “unfair loopholes” to the detriment of smaller rivals. 

“The fact the US and the EU seem to be paying closer attention to the tax arrangements of global online retailers signals that an incoming government in the UK should do the same,” she said.

Retail entrepreneur Theo Paphitis said it was “beyond belief that the government hasn’t clamped down on a gaping tax loophole”, adding that it came “at the expense of British companies that are paying their fair share”.

Anna Bryher, from Labour Behind the Label, which campaigns for workers’ rights, said: “Many are touting the Shein IPO as an opportunity for the UK economy. But Shein have been using their business model to avoid paying tax around the world.”

Business rates paid by bricks-and-mortar retailers contribute towards the cost of local services such as waste collection, road maintenance and street lighting.

Lord Simon Wolfson, chief executive of UK retail bellwether Next, has previously called on the government to close the loophole.

Investors have also raised concerns ahead of Shein’s listing. One large asset manager said: “[Shein’s] business model is unsustainable — one of the reasons is the tax loophole. They’ve built an empire on this, and it could be closed at any point.”

Some Labour figures privately believe that the party should tackle the issue if it wins the general election. “It’s definitely something we will look at, regardless of whether it’s listed [in the UK] or not,” said one.

But a spokesperson for Rachel Reeves, shadow chancellor, denied that a Labour government would take action against Shein’s tax loophole. 

In addition to concerns about the loophole, Shein has also faced allegations of forced labour in its supply chain, which the company denies, saying it “has a zero-tolerance policy for forced labour”.

One Labour official said that the party would — if it won the election — take a tough line on Chinese investment where international security was involved, such as semiconductor factories or high-tech investment. But Shein did not fall into that category. “This is a different ball game,” they said. 

Shein said it was “fully compliant with all tax policies and pays applicable taxes including corporation tax, VAT and employment taxes”.