ECJ Hands VAT Reprieve To Sports Clubs

by Ulrika Lomas, Tax-News.com, Brussels

16 October 2008

Services closely linked and essential to sport supplied by a non-profit-making organisation should be exempt from value-added tax in most instances, according to a recent judgment by the European Court of Justice (ECJ).

The case centred on two hockey clubs based in Canterbury, UK, and the affiliation fees that they pay to England Hockey, a not-for-profit organisation for the encouragement and development of the playing of hockey in England, which in return provided certain services such as coaching, teaching and marketing advice.

According to the UK tax authority, HM Revenue and Customs, such fees are liable to VAT, but the hockey clubs contested the claim, and the case went the UK's High Court, from where is was referred to the ECJ.

The High Court asked the Court of Justice whether the term ‘persons’, in the context of the exemption, includes corporate persons and unincorporated associations or whether it covers only natural persons. The ECJ noted that the exemption does not apply only to certain types of sport but covers sport in general, which also includes sports necessarily practiced by individuals in groups of persons or in clubs.

"Sport within such a structure generally entails that, for practical, organisational or administrative reasons, the individual does not himself organise the services which are essential to participation in the sport, but that the club organises and puts those services in place, as, for example, the provision of a pitch or referee. Thus, if the exemption were interpreted as meaning that it requires that the services be supplied to natural persons taking part in sport in a sports club, the result would be that a large number of supplies of services would be automatically and inevitably excluded from the benefit of that exemption," the ECJ stated.

"Such a result would run counter to the purpose of the exemption which is to extend the benefit of that exemption to services supplied to individuals taking part in sport. In addition, such an interpretation would not be consistent with the principle of fiscal neutrality inherent in the common system of VAT," the European court added.

The ECJ held that, in order to ensure the effective application of the exemption, it must be interpreted as meaning that services supplied in connection with, among others, sports practiced in groups of persons or in sports clubs are, generally, eligible to benefit from the exemption from VAT.

However, to be eligible for that exemption, the services must satisfy three conditions: they must be supplied by a non-profit-making organisation; they must be closely linked and essential to sport; and the true beneficiaries of those services must be persons taking advantage of them.

Supplies of services which do not meet those criteria, particularly those linked to sports clubs and to their operation such as, for example, advice about marketing and obtaining sponsors, cannot be exempted, the court ruled.

Finally, the court points out that the services are not eligible for the exemption if their basic purpose is to obtain additional income for the organisation by carrying out transactions in direct competition with commercial enterprises liable for VAT.

The ECJ said that it is for the High Court to determine whether the services supplied by England Hockey to the hockey clubs satisfy those conditions.

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