Airport Duty Free Shops Pocketing Millions In Taxes

Duty free in general isn’t exactly a deal, whether on a plane or at an airport. The reality is that airlines and airport retailers have a captive audience when on a plane/at an airport, and they’re not afraid to take advantage of it.

If you have nothing better to do than browse their selection, they’ll do everything they can to convince you you’re getting a deal on account of not paying taxes. And most people will gladly fall for it, since shopping passes time.

Heathrow-Duty-Free

In the US the process is still pretty simple. In duty free stores prices are shown to be tax free. If you’re not traveling internationally, you can still purchase things from those stores, but they’ll add on sales tax. As they should.

But in the UK the system seem to be the opposite, and it’s the retailers which have been profiting off of tax savings.

Specifically, UK airport retailers charge taxes on purchases. Then they request to scan your boarding pass when you make the purchase. Their dirty little secret is that they’re collecting boarding pass data so that they can pocket the 20% VAT (value added tax) for those travelers going outside the UK, without passing on the savings to the customers.

Via Telegraph Travel:

Airport retailers have been accused of misleading travellers by claiming millions in VAT refunds without passing on the savings to passengers.

The vast majority of airport shops in the UK request that passengers hand over their boarding passes to be scanned at the checkout – a practice that few realise is used to help stores claim back VAT of 20 per cent on goods sold to passengers flying outside the EU.

And research by the Independent has revealed that – while retailers suggest goods are tax free – these savings are often not passed on to customers.

Retailers are in most cases charging the same at airports as they are on streets, except they’re pocketing the 20% VAT on a large portion of those purchases:

Other retailers were found to be offering small reductions in their airport outlets, but still keeping the lion’s share of the savings. Dixons charges £619 for an iPhone 6 on the high street. In airport stores, it’s slightly cheaper, at £593.99 – but that’s nowhere near the £123.80 saving Dixons makes on every iPhone 6 sold to non-EU passengers. One item on sale at World Duty Free (Clarins Double Serum, 30ml) was priced at £45.80, despite being available for less on the high street, and despite the retailer saving £9.16 in VAT to many fliers.

Retailers admit to this practice, in the name of “accurate reporting of VAT.” And they’re not bashful about not passing on the savings, because it would be a “practical impossibility” to offer discounted pricing to those passengers traveling outside Europe:

Dixons said it follows the “standard practice of non-duty free airport retailers in offering one single, great value price across products”.

It added: “We are not duty free; instead, we offer customers a simple, single price and give them our price promise to beat key online competitors.”

WHSmith claimed that dual pricing – showing 20 per cent discounts for non-EU passengers – was a “practical impossibility”.

Bottom line

Ultimately I suppose retailers are within their rights to do that. And it’s not unreasonable to charge more at an airport than “on the streets,” given that retail space is much more expensive there, and staff are probably paid more as well.

But they’re certainly going about it in a sneaky way, and to suggest that it would be a “practical impossibility” to give non-Europe travelers a 20% discount is absurd.

Next time I buy something in a UK airport shop I won’t be showing my boarding pass on principle, though. On the other hand it sort of kills me that I’ll just be contributing more money to the UK government, which already taxes travelers more than anywhere else in the world!

Do you think this practice by retailers is legitimate? Will you refuse to show your boarding pass going forward, on principle?

(Tip of the hat to Mike)

Comments

  1. That ain’t right. The public perception is that duty-free items (at-least those at airports) are sold tax-free. For them to be pocketing 20% of each transaction for those travelling outside the EU is despicable.

  2. Load up your cart to overflowing with the most expensive items and then refuse to let them scan your boarding pass. You could hold it up to them to prove it. I wonder if they’d allow you to purchase the items? Probably not since most employees in duty-free aren’t working on commission (I’d guess). If they don’t then they can restock all of the items.

  3. The key is knowing the price you would otherwise pay for something elsewhere. I usually buy alcohol. On the way to a destination, I buy if the price seems decent, since this saves some inconvenience upon arrival. Sometimes in Europe, I find excellent deals on Vueve or Moet in twin packs.

    On the way home, the price has to be exceptionally good and my flight home has to be non-stop. I’ve only been to two airports that met these criteria — SJO and BDA.

    Otherwise, I don’t really care if the shop pockets the taxes “saved”. Yes, it is dishonest, but I’m quite sure they pay outrageously high rents to the airports.

  4. They should be displaying two prices one for international travellers who should not be paying tax and the other for EU pax.

  5. This prompts the question just which taxes “duty free” sales are actually exempt from. In many countries, only excise taxes (“vice taxes”) on alcohol and tobacco are not applied at duty free stores, provided that they are in international zones of airports and/or the passenger is leaving the tax area. VAT is still charged.

    Of course, airport shopping has expanded far beyond booze and smokes today, and stores happily leave consumer under the illusion that anything they buy (including that Hermès scarf) should somehow be cheaper. However, customers could just buy that scarf downtown and reclaim the VAT / sales tax upon leaving the country themselves, whereas they could not get back the excise tax on a bottle of gin bought in town.

    What UK airport stores seem to be doing is reclaiming the VAT on goods sold to proven international travellers on their behalf, and then pocketing them. Pretty sly, I admit. In principle, the downtown Hermès store could do the same if it had proof that the buyer had left the country.

    BTW, departing flight data (i.e. your BP scan) is collected at airport stores for other analytical purposes as well, including profitability of specific flights, and adjustment of range based on typical purchase behaviors at different times of day/week.

  6. Gonna sound a bit of an ass here, but this is very much true: Rolex @ Schiphol. 3 times I’ve done it, and 3 time I’ve been right. Better price than at the stores in Amsterdam (even after you do the Global Blue tax back thing), and definitely better prices than here. Significantly so. I can’t remember the numbers, but it was enough that my friend called me to buy another one for him at the airport.

  7. Ben, I have 10,000 miles in Avianca, a Central American airline. My question is how to improve its value and fly to BRASIL. It is required 50,000 and I don’t have that quantity !! Thanks and good luck!

  8. Let me explain all this to you because it is not that easy! It’s not about your citizenship, it’s about your residence. Even if you’re an EU citizen but you live outside the EU for more than one year then you can reclaim the VAT like any other non-EU citizen. This law applies to all EU member states. You can check this. So if they would publish two different prices then they would have to check each buyers whether they live in the EU or not regardless of his/her citizenship. According to the law if you have been either a permanent or a temporary resident in a third (non-EU) country then you qualify and you can shop VAT-free anywhere in the EU. However you must have an acceptable proof like a valid residence permit in your passport.

    I don’t say that I agree with these stores but they’re not lying when they say that it would be really complicated because they would have to train their employees to check your residence status not to mention the dual residents like myself…

  9. How about VAT refund companies, such as Global Blue, etc, that take a big chunk of your VAT refund for their “service?” I think they rip off customers.

  10. There are VAT return kiosks where you can get cash back for tax if you have time, I did once for a laptop I bought from Newcastle. Strange system though.

  11. 31583 – It’s actually very easy if you understand it. If you’re leaving the EU you qualify for duty free purchases. If you’re not then you don’t. That is it, it has absolutely nothing whatsoever to do with residency.

    As to whether it’s sneaky or not, they provide a price and you pay that price – how exactly is that sneaky? Would you refuse to buy that chocolate bar because it turns out they’re making a 15p profit instead of a 10p profit despite charging you exactly the same price?

    I also find it rather bizarre that an American, which has amongst the least transparent pricing on the planet with the absurd practise of quoting prices without tax, would single that out as sneaky.

  12. I’m really confused. These stores are not claiming to be “duty free”. Am I missing something??

  13. An an ex-duty free employee from years back, not showing your boarding card will do nothing for you. You can either scan it (the POS terminal collects the flight #, etc.) or in some cases, show it and they’ll type in the flight # and destination themselves – but not showing it at all is just silly and you won’t get whatever you wanted.

    Also, ‘duty’ in most places, as mentioned above by someone else, is frequently applicable only to products such as alcohol, tobacco, etc. The problem is that these places also cram themselves up with chocolate, fragrances, etc. upon which only Sales Tax/VAT is applicable (confusing the issue massively) – as the EU is effectively one large tax block, Sales Tax/VAT has to be applied to anyone staying within the EU on those products, and since the majority of travellers in EU airports are staying within the EU (in the case of Dublin for example, over 80%), there’s not actually that much “pocketing” taking place.

    In the iPhone example, that’s what…2 in every 10 travellers/customers they can try to recoup the cost of the lower-than-street price offered to internal EU travellers?!

  14. I Refused to hand over my boarding pass because I didn’t see why they needed it and got serious attitude from staff.

  15. Sig – you intentionally made life difficult for low paid employees, for no benefit whatsoever to yourself, and got serious attitude? I can’t fathom why…

  16. We have the same thing going on here in Canada. While hard liquor is a deal at duty free stores, something like Champagne gets a $1.00 discount from our government liquor store prices – and we are heavily taxed!

    Don’t think US DFS stores are exept from this practice. DFS store in HNL airport charges $69 USD for a bottle of champagne that is $30 at the local Safeway store.

    I’m not sure why taxpayers continue to subsidize these businesses.

  17. I was an analyst at a global duty free retailer. Very challenging retail. Margins as high as 70%, but gov extreme bureaucracy for handling duty free merchandise is costly and extortionate rents. Hard to be successful when bidding for the contracts is every few years.

  18. I read this article 3 days back in the UK papers and, like you Lucky, decided I will no longer give the airport retailers my boarding pass.
    You are correct in saying the UK government taxes us visitors already an extortionate amount however, if it comes to choosing who shall get my 20% VAT, and given no choice, I would rather then give it to the Government.
    If only because the Government would at least spend my money on the country’s general health, education and housing standards and helping those at or below the poverty line,

  19. Not a scam if the price displayed is the price you pay. Who cares what the retailers are doing behind the scenes. If the retailer negotiates a discount with one of their vendors and then doesn’t pass it on to the customer, is that a scam?

  20. Actually the duty free shops (in at least some UK airports) do NOT pay any rent, as revealed by the Sky Documentary ‘Inside Gatwick’. Instead, the airport are given a share of the profits made.

  21. I was under the impression that duty free shops targeted high tax third world residents mostly, like brasil for example, in which case you can get insane deals actually. I’m almost kind of shocked to hear of Americans buying stuff from it.

  22. I’m with Mike on this. Buying anything in an Airport store, and expecting to get a reasonable price, is utterly foolish. Their entire reason for being is to scam low information shoppers, who think they are getting a “duty free” price on anything other than alcohol or tobacco. And what good is even actual duty free prices if one is simply paying what would have been “duty” to the airport management instead of the government thru inflated prices? Shop before you fly, and give the profits to honest merchants who actually compete for your business with other local stores.

  23. The lack of consideration for customer facing retail workers in some of these comments is unreal. Uneducated filth? Loading up carts on purpose to make things harder for staff just because they insist on scanning your boarding pass? Wow.

  24. @ Robert Hanson — Don’t disagree it’s reasonable for them to be charging a lot more, but just think the way they’re going about doing that is sneaky.

  25. Those brits are nothing but crooks.
    That’s why I refuse to fly LHR, and I will not buy anything british.

  26. Since none of these businesses claim to be charities, I’m in the camp with those who evaluate purchases based on the price, regardless of any duty-free claim or any other sales tactic. It would be foolish of these businesses to leave these VAT refunds on the table unclaimed. Competitive bid contracts for airport concessions undoubtedly take these profits into account. The only time I’ve ever spent money in international airport shops was to dump remaining cash in a currency I don’t expect to need for at least five years. It seems to be the only place I buy gum, for example. Certainly not looking for a bargain. Or even a Rolex.

  27. Robbie – A rather amusing comment given your attitude is exactly what would be expected from uneducated filth…

    NONE of those shops claim to be duty free. NONE of those shops charge you more than is written on the price tag. They also have much higher running costs than their high street equivalents.

    I repeat, the idea of an American winging about how deceptive it is to be charged the price written on the product when their own stores refuse to display the price of taxable items at all would be hilarious if it wasn’t so tragic.

  28. It is a frustrating practice now familiar to millions of holidaymakers and business travellers, but even some personal finance experts admitted they were surprised to learn of why boarding passes are requested at airport store check-outs.

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