UK Prevails in Tax Dispute With Penny-Auction Site MadBid

(CN) – Europe’s highest court sided with U.K. authorities Thursday on whether auction credits sold by the penny-auction website MadBid.com are subject to value-added tax, more commonly known as VAT.

Founded in 2008 and owned by parent company Marcandi Ltd., MadBid sought to sway the European Court of Justice that only the actual purchase of an item could be considered a transaction subject to VAT.

U.K. tax authorities argued on the other hand that the credits constitute a supply of service under the VAT Directive since users cannot participate in an  auction without them.

An appeal of the case in Britain has been put on holding pending input from EU officials. Based in Luxembourg, the European Court of Justice ruled Thursday morning against MadBid.

“Madbid’s argument, that the issue of ‘credits’ represents the right for the user to purchase goods up to the value of those ‘credits,’ does not correspond to the economic and commercial reality, which is a fundamental criterion for the application of the common system of VAT,” the ruling states.

In addition to the auction side of its business, MadBid has an online shop where users can purchase goods directly. Users who avail themselves of the Buy Now feature allow them to deduct whatever credits they have spent during the auction from the purchase price.

The Earned Discount feature meanwhile allows users to apply their credits from a lost auction toward any goods in the online shop.

But the Court of Justice ruled Thursday that purchase of credits is “an autonomous interest compared with the purchase of goods in Madbid’s online shop.”

Representatives for MadBid have not returned an email seeking comment.

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