I use PayPal as a convenient way to collect the modest advertising revenues that help keep my site going. Today I received notification that PayPal is offshoring its EU operation from its current UK base to Luxembourg. The accompanying Q&A says:
What is the change to PayPal and my account?
PayPal was granted a bank license with the Luxembourg bank authority. Under this license, PayPal will be regulated centrally by the Commission de Surveillance du Secteur Financier (CSSF), the Luxembourg bank authority.
On 2 July 2007, your customer relationship will be automatically transferred from PayPal (Europe) Ltd. to PayPal Luxembourg.
Why is PayPal transferring to Luxembourg?
The transfer will enable us to market our service to online merchants across Europe and allow consumers to use PayPal in more places and ways across the web. Other eBay group companies, such as Skype and eBay, have an important presence in Luxembourg, so it makes sense for PayPal Europe to co-locate with them.
Is PayPal becoming a bank?
PayPal was granted a bank license with the Luxembourg bank authority. We believe the bank status will allow PayPal to more effectively expand its marketing to online merchants. Ultimately, this will give users more places to use PayPal across the web.
I’m not the expert on this, Richard Murphy is your man and I have invited his commentary. But…I have concerns:
- Luxembourg is considered a tax haven and my limited knowledge tells me it has formidable secrecy laws.
- I have seen recent reports that HMRC is planning a clamp down on eBay traders who are not declaring for tax purposes. Once PayPal has moved offshore, how will HMRC get hold of the information it needs to conduct enquiries?
- PayPal is owned by eBay as is Skype. eBay’s pre-tax income for Q1 2007 as reported on Yahoo! was $493 million. Its deferred tax liability has rocketed to $410.5 million. How has that happened for what is after all a very simple business?
- Am I at risk of being labeled a tax evader/avoider because PayPal has moved its HQ?
- Does this move present an opportunity for people to shelter the proceeds of crime and if so what risks does that represent to me? I’m thinking about the theft of mobile phones and especially high value items like the very popular Nokia N95. Cost 600-700 euros.
- How is the man in the street who buys or sells the occasional item supposed to understand the potential implications?
- What should advisors be saying to their clients?
This is not something that advisors or users of PayPal services can readily ignore. I use the service because it is the most common type of payment and receiving service operated globally for the business services I need. It is therefore the closest thing to a global bank operating at a price I can afford to pay. Using credit cards isn’t really an option because the rates and charges applied work out at something around 8% per transaction. PayPal says it isn’t operating banking services right now but I can ask it to transfer monies to my Spanish bank account. I can also ask it to receive money from anywhere in the world. That recently happened in respect of a transaction out of Hong Kong for which I was charged a commission. To me, that’s a banking service.
I recently had to close my old French PayPal account because I was told I couldn’t transfer to my Spanish bank account with a French PayPal account. Given the change of bank location, does this mean I could transfer to other nation states? PayPal says nothing has changed as far as I am concerned. But has it? More important, will it choose to operate new services from which it could earn additional fees that include cross border money movement? It doesn’t say it won’t operate such services.
I know PayPal is obsessive about security, especially on outflows as told to me by a colleague.
You can see why I’ve asked Richard’s opinion.
