U.K. Government Avoids $23B Tax Bill From Supreme Court Ruling

Trust Bloomberg Tax for the international news and analysis to navigate the complex tax treaty networks and global business regulations.

By Ben Stupples

The U.K. government won’t pay value-added tax claims worth 17 billion pounds ($22.6 billion) due to a Supreme Court ruling against a company owned by the billionaire Barclay brothers.

The Nov. 1 judgment from the U.K.’s highest court affects 5,000 claimants who have been waiting to learn whether home-shopping company Littlewoods will receive 1.3 billion pounds in interest payments on a VAT refund. The U.K. tax authority calculates that the claims relating to VAT refunds are worth 17 billion pounds, the judgment said.

The Supreme Court’s ruling is a significant blow to Littlewoods, a subsidiary of the Liverpool-based online retailer Shop Direct, which has fought to claim the tax refund for the past decade.

The Littlewoods case is “one of the largest tax disputes to go to court,” Dominic Stuttaford, London-based head of tax for Europe, Middle East, Asia and Brazil at law firm Norton Rose Fulbright, said in a Nov. 1 news release. The U.K.’s tax authority “will unsurprisingly be pleased” with the ruling.

30 Years of Overpayments

The Littlewoods case focuses on the company, now based online after dropping its mail-order catalog in 2015, overpaying 205 million pounds VAT between 1973 and 2004.

Over the next four years, HMRC repaid Littlewoods the original amount plus 268 million pounds in interest. While Littlewoods didn’t dispute the VAT refund, it claimed that HMRC should also have paid 1.3 billion pounds in accumulated interest earned from the 268 million pounds.

Following hearings in 2010, a High Court judge referred the case to the European Court of Justice over the interpretation of EU law on the compensation a company should receive for overpaying VAT. In a July 2012 judgment, the ECJ said that Littlewoods is entitled to reimbursement, but that national law should determine what type of interest HMRC paid to the company.

In 2014 the High Court ruled in favor of Littlewoods. The Court of Appeal, the U.K.’s second-highest court, upheld the company’s right to receive the 1.3 billion pounds in compound interest in 2015. In turn, HMRC appealed that ruling to the Supreme Court, with the hearing held in July.

Jeremy Cape, a London-based tax partner at law firm Squire Patton Boggs, reacted to the Supreme Court ruling by highlighting the significance of the European Court of Justice’s verdict.

“This is a good example where ECJ jurisprudence could potentially have ended up overriding a U.K. statute and put a massive hole in the U.K.’s finances,” he told Bloomberg Tax Nov. 1.

Littlewoods ‘Disappointed’

In a Nov. 1 statement, a spokeswoman for Littlewoods told Bloomberg Tax the Supreme Court ruling is “disappointing” in light of the company’s previous success at both U.K. courts and the ECJ.

“Given the importance of the legal issues and the sums at stake, we felt a duty to pursue this to its ultimate conclusion,” she added. “To that end, today’s decision has provided legal certainty and we can now finally draw a line under this case.”

A spokesman for HMRC told Bloomberg Tax in a Nov. 1 emailed statement that the court ruling is a “great outcome” for the U.K. taxpayer, protecting billions of pounds for public services funding.

15 Percent of Total U.K. VAT

The 17 billion pounds’ worth of VAT claims mark close to 15 percent of the total 119.8 billion pounds that HMRC collected for the levy in the latest financial year, according to data compiled by Bloomberg Tax.

Founded in 1923, Littlewoods is controlled through Shop Direct Holdings Limited. Twin brothers Sir David and Sir Frederick Barclay—owners of The Telegraph newspaper and The Ritz hotel in London—control this holding company, according to Shop Direct’s latest Companies House filings.

The brothers, 83, have a combined fortune of 7.2 billion pounds, according to the Sunday Times Rich List 2017.

To contact the reporter on this story: Ben Stupples in London at bstupples@bna.com

To contact the editor responsible for this story: Penny Sukhraj at psukhraj@bna.com

Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.

Request International Tax