VAT News

UK-Upper tribunal permits Sports Direct to appeal HMRC letter

Under existing EU VAT legislation, B2C sales of goods are subject to VAT in the EU member state in which the goods are located at the time of dispatch to the consumer. However, once sales to an EU member state exceed the distance selling threshold (€35,000 or €100,000, or local equivalent) in a calendar year, the supplies become subject to VAT in the member state of the consumer. Thus businesses may potentially face VAT registration obligations in each of the 28 EU member states.

Sports direct however implemented a structure whereby any B2C sales made to non-UK customers would firstly be sold B2B to a seperate UK entity, who would then make the sale to the end consumer. The effect of this was that only UK VAT would ever be due on sales, and the distance selling rules would not be applicable to any transactions.

Initially in 2010, HMRC approved of the transactions but in 2015 an approach was made to the EU VAT committee for views on whether the arrangement actually breached EU law.

Following this in 2016, HMRC wrote to Sports Direct informing them that they must further discuss the arrangement with EU tax authorities to obtain an opinion on where VAT was indeed payable based on the true contractual arrangement between the parties.

Sports Direct sought permission to challenge this opinion and this was duly granted. HMRC then appealed this right but lost an appeal to the upper tribunal.

The expectation now is that Sports Direct will take the matter to the European Court of Justice for clarification.

Related articles

EU-VAT gap report

The 2016 VAT gap report for the 28 EU member states has recently been released

Read more
UK-Implications of a 'no-deal' Brexit

The UK government has released guidance on the VAT impacts of the UK leaving the EU with no deal negotiated

Read more
South Korea - VAT has been extended to foreign cloud computing

The scope of VAT has been extended to foreign B2C cloud computer services.

Read more