Sports Direct part settles €674m Belgium VAT probe

Frasers Group, formerly known as Sports Direct International, says it has largely resolved a €674m (£571m) probe into its tax affairs after Belgian tax authorities cancelled most of the bill

The disputed tax bill resulted in a delay to the publication of the retailer’s annual results in mid-July last year, following the discovery of a substantial tax demand from the Belgian tax authorities over intra-group trading. 

The tax demand for €674m, including 200% penalties and interest, was received on 25 July and since the amount was material to the accounts, the company’s external auditor Grant Thornton refused to sign off the preliminary results without reassurances from Sports Direct’s tax advisers, Deloitte, and lawyers at law firm RPC. Grant Thornton subsequently resigned as statutory auditor. 

Now the company, rebranded as Frasers Group, has said it has confirmation in writing from the Belgian tax authority that it has completed its review of ‘Matter 1’ in the dispute and that it is satisfied with the explanation provided. Matter 1 accounts for €491m (or 73%) of the total €674m referred to in the original ‘proces verbal’, or legal challenge.  

Matter 1 has been withdrawn from the proces verbal by the Belgian tax authority, which said VAT has been correctly accounted for in Belgium. This aspect of the challenge has been resolved with no payment of VAT liabilities or associated penalties and interest to be made by the company or any member of its group.

Frasers Group’s update on the issue also includes an explanation of what it called ‘some clerical reporting errors’.

These historical clerical reporting errors included the paying of VAT to the Belgium tax authority by a Frasers Group UK entity on goods shipped to a Frasers Group Belgian entity with a simultaneous reclaim of the same VAT by that Belgian entity. Due to EU reverse charge rules, VAT should neither have been paid by the UK entity or reclaimed by the Belgian entity and, although the net result was that the correct amount of VAT due to the tax authority had been paid, the documentation provided and process followed were incorrect.

Frasers Group said it and its advisers will continue to fully engage and work with the Belgian tax authority in order to resolve the smaller remaining matters referred to in the proces verbal ‘as soon as possible’.

The statement concluded: ‘Frasers Group management still believe that it is less than probable that material VAT and penalties will be due in Belgium as a result of the tax audit.’

Grant Thornton resigned as the company’s auditor in the wake of the original discovery of the tax demand from Belgium, and Sports Direct embarked on a length search for a replacement, eventually appointing RSM in October.

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