Belgian tax authority drops part of Frasers tax probe

FILE PHOTO: Shoppers walk past Sports Direct store on Oxford Street in London, Britain December 17, 2018. REUTERS/Simon Dawson/File Photo

Frasers Group said the Belgian tax authority had concluded most of its investigation into a tax dispute and declared itself satisfied with the explanations provided, removing a cloud of uncertainty from the retailer.  The company, until recently called Sports Direct, added that it continues to work with the authority on other matters relating to the “process verbal” that was announced at the time of its full-year results last July.  News of the dispute delayed the release of the results by over eight hours, prompted a sharp fall in the company’s share price and further strained its relationship with auditors Grant Thornton.  The company said it at the time that it did not believe there was a case to answer and made no provision in its accounts for the €674m in tax, penalties and interest sought by the authority.  “VAT has been correctly accounted for in Belgium,” it said in a statement. “Accordingly, Matter 1 has been withdrawn from the proces verbal by the Belgian Tax Authority, and this aspect of the proces verbal has been resolved with no payment of VAT liabilities or associated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”.  ‘Matter 1’ accounts for €491m, or almost three-quarters, of the total amount disputed. The company said it still believes it is “less than probable” that any material VAT or penalty will be payable but that it will “continue to fully engage and work with the tax authority”.  Frasers also provided more detail about the “clerical reporting errors” revealed at the time of the half-year results in December. These involved a UK group entity paying VAT to the Belgian authority and a Belgian subsidiary reclaiming it.  Under EU reverse charge rules, no VAT was actually payable or reclaimable. “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”.  The revelation of a potential tax liability amounting to 3 times the group’s annual profits shocked investors and raised more questions about governance. The company operates a famously lean management team that was already stretched by the 2018 acquisition of struggling department store chain House of Fraser.  Since then it has parted company with Grant Thornton, which was replaced as auditor by RSM. A previous audit remains the subject of a dispute between Grant Thornton and the Financial Reporting Council.  But an apparent stabilisation in trading at House of Fraser and the reinstatement of profit guidance for the current financial year have led to a rally in Frasers’ share price, which finished 2019 up almost 90 per cent.

Leave a Comment

Your email address will not be published. Required fields are marked *

Scroll to Top
Loading...