LONDON – Shein, the Chiness fast fashion company, is benefiting from an import duty exemption on low-value parcels, which one of its UK competitors claims gives it an unfair advantage. Julian Dunkerton, CEO of Superdry, described the exemption as a tax “loophole,” allowing Shein to avoid paying taxes that other companies face.
In the UK, parcels worth less than £135 shipped directly to customers do not incur import tax, a rule that benefits companies like Shein, which ships products directly from China. In contrast, other fashion brands, which import larger shipments, must pay taxes before distributing products within the UK.
Shein, recently valued at US$66bn, has significantly disrupted the fast fashion market by offering low-cost clothing directly from Chinese factories to consumers in the UK and US. The company attributes its success to an “efficient supply chain” rather than tax exemptions, and maintains that it fully complies with UK tax laws.
However, Dunkerton criticised the system, stating, “The rules weren’t designed for companies sending individual parcels and making billions in the UK without paying tax. We’re essentially enabling tax avoidance.”
Mark Tan, international corporate tax partner at Spencer West LLP, weighed in on the issue, responding to Dunkerton’s remarks. “This morning, Superdry’s CEO inferred to the BBC that Shein is avoiding tax through a loophole in our tax system. This is a bold statement.” He added that, without a deep understanding of Shein’s business model, it’s difficult to make specific claims about its tax practices.
Tan explained that the current global tax system, including the UK’s, was designed in an era when businesses operated through physical locations. “E-commerce and digital businesses exploit these outdated rules by avoiding a taxable presence in many jurisdictions where they generate significant revenue.” He pointed out that many online retailers claim they don’t have a taxable presence in the UK, making tax avoidance a complex issue in the digital age.
International tax authorities are aware of these challenges and are working under the OECD’s Base Erosion and Profit Shifting (BEPS) framework to modernize tax regulations. However, Tan cautioned that this process will take time, as authorities must also avoid double taxation on companies that innovate and create new supply chains. “We live in a new world, and the points of view between tax collectors and entrepreneurs will always differ. Who knows what comes next after e-commerce?”
Meanwhile, Shein is facing growing scrutiny in the UK as it explores a possible listing on the London Stock Exchange. The company initially planned to launch an IPO in New York but shifted its focus to London following criticism from US lawmakers.
Liam Byrne, Labour chair of the Business Select Committee, has called for greater oversight of Shein’s business practices and urged the UK government to ban the import of products made through forced labor in China. He also highlighted due diligence concerns, noting that the New York Stock Exchange had raised unresolved issues during earlier discussions.
