Circular 2018/C/84 on the VAT exemption for sports
The FPS Finance recently issued a circular stating that activities with a non-negligible physical component are sports and therefore fall under the exemption of the VAT Code on the VAT exemption for sports [1]. In other words, the tax authority uses a new definition of sport. From January 1, 2019, bridge and chess will not be considered a sport for the purposes of VAT. This was the result of a recent judgment by the Court of Justice.
The English Bridge Union and the ECJ
In the judgment of 26 October 2017, the Court of Justice provided a definition regarding the concept of sport within the meaning of Article 132(1)(m) of the VAT directive [2]. This judgment followed a discussion between the English Bridge Union and the United Kingdom tax authorities. The discussion concerned the question of whether or not bridge was a sport for VAT purposes.
The Opinion of Advocate General SZPUNAR[3] compared what is treated as sport by tax authorities in different Member States. The conclusion was that there was no uniformity. While competitive bridge is a sport in Belgium, Denmark, France, the Netherlands and Austria, it is not seen that way in Ireland and Sweden. Chess is also seen as a sport in some Member States such as Belgium and Italy, but not in Germany.
According to the Court, one can only speak of a sport if there is a non-negligible physical component, referring to the underlying intention of the term “sport” in everyday language. ‘Bridge is an activity that benefits the mental and physical health of the practitioner, but that is not enough to speak of ‘sport’ in this context’, so the Court of Justice said. Sport must be interpreted strictly and from the systematic and teleological interpretation of the VAT Directive, the Court concludes that the concept refers to ‘activities characterised by a non-negligible physical component’. For this reason, bridge cannot be considered a sport.
A new definition of sports
Following this judgment, the aforementioned circular has recently been issued at Belgian level with the aforementioned new definition of sport. This circular means that from January 1, 2019, sports where a non-negligible physical component is present will fall under the VAT Code exemption. While the Advocate General stated in his opinion that in Belgium competitive bridge is regarded as a sport by the tax authorities, this will no longer be the case in the future. This has consequences, among other things, for the application of the exemption scheme provided for in Article 44 of the VAT Code.
[1] Circular 2018/C/84 on the VAT exemption for sports.
[2] CJEU 26 October 2017, no. C-90/16, ECLI:EU:C:2017:814, The English Bridge Union Limited/Commissioners for Her Majesty’s Revenue & Customs.
[3] Concl. M. SZPUNAR at ECJ June 15, 2017, C-90/16.
What the exemption covers
The exemption is not an exemption for sports clubs as such. It attaches to services closely linked to sport or physical education, supplied by an organisation without profit intent to persons taking part in sport. Three conditions therefore have to be met at the same time: the nature of the service, the character of the supplier and the identity of the recipient. Where one of them falls away, the supply is taxable even though the organisation is a sports club.
That is why the boundary questions matter more than the principle. Membership fees that give access to the sporting activity normally fall inside the exemption. Income from a bar, from advertising, from sponsorship and from letting facilities to third parties normally falls outside it. An organisation can therefore carry exempt and taxable activity at the same time, which brings a right to deduct input VAT on part of its costs and an obligation to apportion.
The practical consequence is administrative. Split the income by category in the accounts from the start, keep the contracts that show what a sponsor actually receives, and test the position again whenever a new source of income is added. A reclassification made years later applies to the whole period that is still open.
This article was written by our summer intern Elodie Blancke.
What the VAT exemption means for a sports club
The exemption decides whether a club has to charge VAT on what it asks its members and participants to pay. Where it applies, the club charges no VAT on those amounts. The other half of that rule is easy to miss: the club then cannot deduct the VAT it pays on its own purchases either. That matters most when a club invests in a building or in equipment, because the VAT on a large investment is not recoverable where the activity it serves is exempt.
The test is applied to the activity, not to the label the organisation gives itself. One club can therefore have exempt activities alongside taxable ones, a bar or the commercial letting of a hall being the usual examples, and the right to deduct then has to be apportioned between them. Working that apportionment out at the start of a project costs a fraction of correcting it under assessment years later. We advise clubs and federations on tax law in sport.