A significant VAT case was decided recently in the Court of Justice for the European Union (CJEU) in favour of a football agent in respect of staged commission payments. In a victory for common sense, in this case it was football agent one, VAT authorities nil.
The VAT authorities claimed that the service of a German football agent, which was to find a player for a German football club, was supplied in 2015. Therefore, they said, the agent was entitled to all his commission in 2015. This was the case even though the commission was payable in six monthly intervals for several years into the future based on the player’s earnings in each six-month period.
The VAT office made its claim by applying the rules relevant for trading businesses. When a business performs a service and raises its invoice, VAT is charged and becomes payable even if the customer doesn’t pay the invoice for months to come.
Specifically, Article 63 of Council Directive 2006/112/EC of 28 November 2006 says: “The chargeable event shall occur and VAT shall become chargeable when the goods or the services are supplied.”
The agent’s player signed for the club in 2015 and then his job was done. Strictly on these facts, the VAT office has a point. But, given the fact that the commission was payable over an extended period, this is stretched to the extreme and is, in my view, ridiculous.
Thankfully, the European Court of Justice saw through the issue in a reasoned way and decided that for this type of contract:
- The supply was not just to get the player to sign for the club (so it was not a supply that just happened in 2015)
- The supply was getting the player to sign for the club and the delivery of the player’s services
- The supply takes place when each six-month period ends (and the player has supplied his service)
VAT was, therefore, due when the commission was due in six monthly intervals and not all at the outset in 2015.
Common sense, for once, prevailed. But how much time, cost and effort did it take for the VAT authorities to pursue the case and for the agent to defend it?
If the VAT authorities had been successful, would it be fair to an agent to have to pay VAT on commission he was not entitled to collect for several years into the future? It may well have caused financial hardship, even for a highly successful agent.
It makes me wonder why we have this insistence on interpreting the rules to the letter rather than in accordance with the principle. Surely, if the rules aren’t fit for purpose the authorities should apply to have them amended to achieve a “reasonable” outcome. This would be far better than wasting public money and time by trying to enforce a rule in order to achieve an unfair and unintended outcome.
To discuss any issue relating to tax and VAT for football, sport and IP, please contact Paul Simnock on 020 7625 4545.