Sports Clubs and Tax

17th October 2022

Author/s:
Attorney-at-law and tax consultant Dr. Dr. Bernd Josef Fehn

In its decision of April 21, 2022 - V R 48/20 (V R 20/17), the #Bundesfinanzhof (Federal Fiscal Court) changed its previous case law and ruled that sports clubs cannot rely on the #tax exemption according to Art. 132 para. 1 lit. m) of #Directive 2006/112/EC of the #Council on the common system of value added tax (RL 2006/112/EC) of November 28, 2006 (OJ EU No. L 347 p. 1, amended 2007 No. L 335 p. 60, 2017 No. L 336 p. 60) - #VATSystemDirective (#MwStSystRL), if the VAT liability results from national law in implementation of the Directive. The previous case law, which allowed a direct invocation of Art. 132(1)(m) VAT Directive (cf. #BFH, judgment of 3.4.2008 - V R 74/07; #judgment of 2.3.2011 - XI R 21/09, judgment of 16.10.2013 - XI R 34/11 and judgment of 20.03.2014 - V R 4/13), is thus obsolete and the German #legislator is called upon to further exempt services in the field of sports from #VAT (#VAT Act). The directive leaves room for the previous handling of the legal situation by the administration and courts to continue to apply. Until this happens, services provided by sports clubs to their members will be subject to #VAT, if they are not sporting events within the meaning of § 4 No. 22 lit. b) UStG. In the case in question, a #golf club provided services to its members for a separate fee. In addition, there was a lack of sufficient #asset earmarking in the event of the #dissolution of the club.

After appeal to the #EuGH, which had ruled that a direct appeal to the #tax exemption under the #VAT Directive does not apply and that the holding of golf tournaments and events at which entry fees are charged, which are actually to be subsumed under § 4 No. 22 lit. b) UStG, are contrary to the exemption from #VAT because the association's assets cannot be distributed exclusively for a specific purpose in the event of dissolution, the #BFH endorsed this view.

As per this, a provision in the articles of association according to which the assets of the association are to fall to a person or institution determined by the general meeting in the event of dissolution or annulment of the association is detrimental to taxation. The non-profit status according to §§ 51 ff. #Tax Code (#AO) does not apply. This is because the concept of a non-profit organization within the meaning of Art. 132 (1) (m) #VAT Directive requires that, in the event of its dissolution, the organization may not distribute generated profits exceeding the paid-in #capital shares and the fair market value of the #property contributions to its members. Otherwise, the necessary absence of a profit motive could be circumvented.

#Sports #clubs should therefore review their articles of #association to determine whether, in the event of dissolution or annulment of the #club, its #assets should be transferred to a legal entity under public law or another tax-privileged corporation designated by the general meeting for use for charitable purposes to promote the respective sport. Otherwise, disputes under #tax law are pre-programmed and further consequences under #tax law (#VAT evasion) cannot be ruled out.