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Last Updated: Wednesday, 28 March 2007, 17:34 GMT 18:34 UK
Alps at hand for Tesco cheap CDs
Tesco has avoided VAT by basing CD mail order operations in Jersey
Supermarket giant Tesco has moved its CD and DVD mail order business from Jersey to Zurich, in order to keep using a controversial tax loophole.

The move follows a crackdown on British retailers distributing tax-free CDs and DVDs onshore from the island.

The move will mean Tesco will continue to benefit from a clause allowing goods worth less than 18 to be imported into the EU without attracting VAT.

Low value consignment relief costs the Treasury about 90m a year.

"Following changes in local legislation in Jersey and so that we can continue to offer these great prices to our customers the fulfilment operation of this business is now based in Switzerland," Tesco said.

Small business anger

CDs and DVDs bought in Tesco's UK High Street stores attract a VAT charge of 17.5%.

But buying online has until now allowed the grocery giant to keep its warehouse in Jersey, which is not subject to EU VAT rules, and take advantage of low value consignment relief.

Tesco is not the only large retailer to take advantage of the relief, which has upset small businesses.

The Forum of Private Business has urged the chancellor to close the loophole.

However, Paddy Behan, VAT director at Grant Thornton UK, said: "With supply chains and distribution becoming international, it's always a struggle for the VAT system to keep up.

"But the small consignment rule is an important relief and if it were abolished to stop short-term tax leakage it would have effects far beyond the effects of this type of transaction, complicating customs and VAT law."

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