The Court of Appeal has ruled that a member of
an online retail group must pay corporation tax on VAT repayments, in a
judgment that could safeguard up to £800 million for vital public
services.
England and Wales’ second most senior court has
upheld earlier decisions in both the Upper
Tribunal and First Tier
Tribunal that Shop Direct Group should pay tax on both the repayments
and related interest payments. The repayments were made by HM Revenue and
Customs (HMRC) after various companies within the Shop Direct group of
companies made claims for incorrectly paid VAT.
The Court of
Appeal backed HMRC’s position that the repayments
represented part of Shop Direct Group’s trading income, and as such
corporation tax should be paid on them.
HMRC also successfully argued that, under rules
governing the taxation of corporate debt arrangements known as Loan
Relationships, the statutory interest on the repayments was also liable to
corporation tax.
Taking into account the significant number of follower
cases, thet ruling is set to protect over £300 million in tax. If the
Court of Appeal had ruled in favour of Shop Direct Group, a further £500
million of tax could have been put at risk.
Jim
Harra, Director General Business Tax, HMRC, said:
This case shows that HMRC does not hesitate to
take big businesses to court, if necessary, to ensure they pay their share of
tax, like everyone else.
The
Court of Appeal’s ruling means that HMRC’s position has now
been backed by three courts. Other businesses have refused to pay corporation
tax on the same grounds as Shop Direct, and on behalf of all taxpayers we will
ensure they too pay what they owe.