Germany supports a comprehensive reform of import taxes within the European Union, which may put an end to the tax exemption policy for cheap parcels. Online retailers Shein and Temu have been accused of taking advantage of this policy by flooding the market with “Made in China” cheap clothing, accessories, and trinkets.
According to current EU regulations, parcels purchased online from non-EU countries are not subject to duties if their value is below 150 euros (163 dollars).
The main retail association in Germany, the HDE (German Retail Association), has been lobbying the German government, arguing that this exemption has led to a significant increase in the number of small parcels entering the EU through platforms like Shein and Temu, with customs authorities lacking the capacity to inspect all products for compliance with EU regulations.
The German Ministry of Finance has welcomed the proposal by the European Commission to “adjust European customs laws to address e-commerce challenges.” This proposal is part of a broader reform plan that includes the elimination of tax exemptions.
HDE informed Reuters that German Finance Minister Christian Lindner has “expressed Germany’s support for lifting the 150 euro tax exemption threshold at the European level.”
The EU is discussing abolishing this threshold as part of a customs reform plan proposed by the European Commission in May 2023.
Shein told Reuters that the company strives to comply with laws and regulations in their operating countries, including those related to customs and tax compliance.
In the United States, Shein and Temu have also been accused of using import tax exemptions to undercut competitors’ prices and evade customs inspections.
Through this practice, both companies have provided consumers worldwide with irresistible cheap products, including jumpsuits for as low as 8 dollars and smartwatches for 25 dollars. As Shein aims to go public in New York amid rapid growth, they have faced opposition from U.S. lawmakers. Currently, Shein is ramping up preparations for a listing in London.
When asked about the possibility of the EU abolishing tax exemption thresholds, Shein stated that contrary to common misconceptions, their low prices are based on a “technology-driven on-demand business model and flexible supply chain.”
Temu, a competitor of Shein and a subsidiary of China’s online retail giant Pinduoduo, also denied that their growth was mainly driven by the tax exemption policy. A Temu spokesperson, in a written response to Reuters, attributed the company’s rapid expansion to the efficiency of their cultivated supply chain and operational capabilities over the years.
The European Parliament approved this customs reform bill in a preliminary vote in March, and after the European elections in early June, the new parliament will further evaluate the bill.
The European Commission noted that in 2023, 20 million packages valued below 150 euros were declared from abroad upon arrival in the EU, stating that the vast volume of e-commerce is testing customs to the limit.
The Commission also mentioned that import tax exemptions encourage sellers to split shipments, with up to 65% of package values being underestimated to benefit from tax relief.
Shein asserted that they have made the necessary declarations for orders shipped to European customers and have paid the required taxes, including duties on orders exceeding the 150 euro threshold.
Temu claimed that they do not split packages to bypass customs controls or engage in false declarations.