LONDON, May 23 (Reuters) - Germany supports an overhaul

of European Union import taxes which could end an exemption for

cheap parcels that has helped online retailers Shein and Temu

grab market share with their cut-price clothes,

accessories and gadgets made in China.

Critics of Shein and Temu in the United States have already

complained that they use an import tax exemption there to

undercut rivals and avoid customs inspections of their products.

The practice helps the two companies offer dresses for as

little as $8 and smart watches for $25 to shoppers around the

world. Shein is currently stepping up preparations for a London

listing, after an attempt to float in New York faced pushback

from U.S. lawmakers.

Under current EU regulations, packages purchased online from

a non-EU country are not subject to customs duties if their

value is under 150 euros ($163).

Germany's main retail association, Handelsverband

Deutschland (HDE), has been lobbying the German government,

saying the exemption has encouraged a massive increase in small

parcels entering the EU from online platforms like Shein and

Temu, and that customs authorities lack the capacity to check

all the products comply with EU rules.

Germany's finance minister Christian Lindner "has signalled

that Germany will support the abolition of the 150-euro

duty-free limit at the European level," the HDE told Reuters.

Germany's finance ministry said it welcomed the fact the

European Commission had put forward "proposals to adapt European

customs law to the challenges of e-commerce", referring to a

broader reform plan that includes ending the duty-free limit.

In response to Reuters' questions, Shein said: "We seek to

comply with all relevant local laws and regulations of the

countries in which we operate, including in relation to customs

and tax compliance."

The EU is discussing abolishing the limit as part of a

customs reform project proposed by the Commission in May 2023.

Asked about the EU possibly scrapping the limit, Shein said:

"Contrary to some common misperceptions, we keep prices

affordable through our technology-based on-demand business model

and flexible supply chain."

Rival Temu, owned by Chinese online retailer Pinduoduo

Holdings, has also denied that its growth has been mainly driven

by the duty-free policy.

"The primary drivers behind our rapid expansion and market

acceptance are the supply-chain efficiencies and operational

proficiencies we've cultivated over the years," a Temu

spokesperson said in written responses to Reuters' questions.

Industry association Ecommerce Europe, whose members include

Amazon and eBay, has said scrapping the duty-free limit would

increase trade frictions and could result in retaliatory

measures from key trading partners like the U.S..

The European Parliament approved the customs reform bill in

a preliminary vote in March, but the bill will be assessed

further after European elections in early June, with a new

parliament in place.

Two billion parcels with a declared value of less than 150

euros arrived in the EU from outside countries in 2023,

according to the Commission, which says "the sheer volumes of

e-commerce are testing customs' limits".

The Commission has also said the import tax exemption

encourages sellers to split shipments up and as many as 65% of

parcels are undervalued to benefit from the tax break.

Shein said it makes relevant declarations and pays required

taxes on orders shipped to customers in Europe, including

relevant customs duties on orders valued above the 150 euro

threshold.

Temu said it does not split parcels to bypass customs

controls or engage in false declarations.

($1 = 0.9224 euros)

(Reporting by Helen Reid; Additional reporting by Tom Sims;

Editing by Matt Scuffham and Mark Potter

)