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Sports Direct Wins Ruling In Larger Distance Selling VAT Case

by Amanda Banks,, London

29 August 2017

The UK's Upper Tribunal has said Sports Direct can appeal against a letter received from HM Revenue and Customs in 2016 concerning arrangements that enable the company to avoid VAT distance selling rules for supplies to EU consumers.

Sports Direct, a major sports clothing and equipment retailer, had sought to simplify its VAT arrangements by avoiding distance selling rules. These distance selling rules are triggered when a sales threshold of either EUR100,000 or EUR35,000 is reached, upon which a taxable person must begin accounting for business-to-consumer supplies as a registered person in the jurisdiction of consumption, under that state's rules and rates. This potentially could have triggered the need for Sports Direct to register for VAT in all EU member states in which it made considerable supplies.

Instead it opted to instead trade with and through an unconnected taxable person, allowing it to avoid distance selling rules, as the transactions were business-to-business, rather than business-to-consumer, and therefore – the company contends – outside the scope of distance selling rules.

In 2010, Sports Direct asked for a comfort letter from HMRC that the arrangement is acceptable. HMRC acknowledged the arrangement in 2010 but later, in 2015, the UK tax authority approached the EU VAT Committee to seek its opinion on the arrangement. It responded that domestic tax authorities should look at the true substance of the contractual arrangement between Sports Direct and the consumer.

In 2016, HMRC wrote to Sports Direct, suggesting that the arrangement may be in breach of EU VAT rules and that the company should ask EU tax authorities for their views on whether they consider the correct VAT was being collected.

Instead Sports Direct sought to appeal the letter, in a request before the First Tier Tribunal, which ruled that the company may appeal the letter. HMRC sought to challenge that ruling but has lost, in HMRC v. Sports Direct [2017] UKUT 0327 (TCC), released on August 11. It is expected that Sports Direct will now request an opinion on the underlying VAT matter from the European Court of Justice.

TAGS: VAT tax authority guidance | tax | VAT legislation | law | United Kingdom | tax authority | legislation | VAT case law

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