In recent years, the sports (particularly football) sector has increasingly found itself embroiled in legal disputes, particularly regarding tax compliance and obligations. One such case that has garnered attention is the Sports Invest VAT case, which centers around the VAT liability of agents’ fees supplied to players and clubs.

Summary

The ruling in favour of Sports Invest by the UK First Tier Tribunal is to some extent the logical extension of recent HMRC practice with respect to the VAT treatment of agents’ fees.  HMRC have moved away from a broad-brush apportionment of, say a 50/50 split between services provided to the player and the club but paid wholly by the club, whereby the club can only recover VAT on the element of the services supplied to it and not the element attributable to services provided to the player.

The UK FTT considered that based on the contractual, economic and commercial realities of the transfer under consideration, the fees received by the agency and payable to it by the club were solely attributable to services to the club.  In this particular case, the consequence was the UK VAT was not chargeable on the fees to the club – although if a UK club had been the purchasing club, UK VAT would have been chargeable but the UK club would have been entitled to 100% recovery on the VAT charged.

The decision highlights the importance for clubs of documenting all engagements with agents and detailing the rationale and reasoning for all agent engagement.  Doing so will support enhanced attribution of the agent’s fees to supplies to the club.  In addition, clubs may also be able to review historic dealings with agents applying the Sports Invest decision logic and may be entitled to make claims for possible under-recovered VAT on agents’ fees.

Background

The case revolves around a UK based sports management company, Sports Invest, which acts for both clubs and players during transfers and contract negotiations. The company claimed that services provided to an Italian club during the purchase of a Portuguese player (from a Portuguese club) should be outside the scope of UK VAT on the basis that the supplies were made solely to the purchasing club (and therefore a B2B supply subject to VAT where the recipient of the services belongs) and not to the player (a B2C supply subject to VAT where the supplier of the services belongs).

Historically, many clubs and agents have accepted that the fees charged by the agent may have been paid wholly or partly by the club but those fees are attributable to services provided to both the player and club.  Clubs have therefore been unable to recover VAT charged to them by agents on fees payable by the club on behalf of the player.

Legal Arguments

The key legal issue at the heart of the Sports Invest VAT case is whether the services provided by the company could be classified as supplied to the club and/or the player.  Sports Invest argued that it had waived a £3m fee payable to it calculated by reference to a proportion of the player’s salary in return for a £4m fee payable to it by the club on the proviso that Sports Invest were involved in the deal from start to finish.

On this basis, Sports Invest considered that the supplies it made and the consideration it received were solely for services to the Italian club and were therefore wholly outside the scope of UK VAT.

HMRC disagreed with the analysis and argued that £3m of the £4m consideration received from the club by Sports Invest were for services provided to the player and subject to VAT in the UK.  As these services were supplied to the player and not the club, the club would have no right to VAT recovery on this UK VAT element of the payment.

Court Proceedings

The UK First Tier Tribunal applied the broad principles established in other EU and UK VAT cases that there must be a legal relationship between the supplier and recipient for there to be a taxable transaction and this is established by the commercial and economic realities involved in each transaction – these may or not be reflected in the legal agreements.

The Tribunal found on examining the dates of the various agreements and the dates on which the services were supplied, that it was clear that services were provided to both the player and the club.  However, the Court found no evidence that any consideration received by Sports Invest was attributable to the services to the player.  Accordingly, the commercial and economic reality of the transaction was that the £4m fees received by Sports Invest were solely and wholly attributable to services supplied to the club.  In particular, the Court considered that the contractual, economic and commercial evidence pointed to the payment from the Italian club being made in return for Sports Invest securing an employment contract with the player – which would not have happened without Sports Invest’s input to the transfer.

As such, the whole supply was a B2B supply received outside the UK and therefore outside the scope of UK VAT.

Conclusion

If you would like to discuss any aspect of the case either in terms of structuring arrangements in future or looking at VAT recovery on historic transfers, please don’t hesitate to contact our VAT Partner, Dougie Todd (dtodd@haysmac.com) or your usual HaysMac contact.