An assessment of VAT treatment on football club transfer fees.
As the new season approaches clubs of all sizes often encounter transfer fees and onward transfer fees. Questions could arise for members acting as clubs’ treasurers or accountants specialising in serving this sector: for example how these fees would be seen from a VAT perspective especially with an added complication of fees for a footballer’s further onward sale charged by the original purchaser.
A football club sells a player to another professional club for £50,000 plus VAT. The terms of the transaction are that if the player is resold onwards by the professional club for a profit, the original club would receive 20% of the profit made on the onward sale.
The player is sold on by the professional club for £500k, making the professional club a £450k profit. The original club would be entitled to 20% of £450,000.
Does the onward sale represent a supply for the original club on which the club should charge VAT or is the onward sale outside of scope for VAT? Is the profit share on the onward sale a further consideration in the original sale, for example a contingent part of consideration?
The scenario described in the article was juxtaposed with a similar point made in relation to an onward sale of a painting, where the original sale was subject to VAT, but the subsequent onward sale was not, according to European law relating to royalties.
The key consideration is whether or not an expectation was created and linked the transactions to a specific agreement for the supply of a specific good or service:
Painting transaction - CJEU case of European Commission v Republic of Austria (Case C-51/18)
in this case, the onward sale of the artwork has not been explicitly agreed and was not expected
the basis of the VAT treatment was European law relating to royalties, where the artist is entitled to a share of future sale proceeds
a contract does not arise between parties or to define the terms; those arise as a result of enacted laws
the artist does not have to participate in the resale transaction even indirectly, in order to be entitled to a share of onward royalties
payment for the first and the onward sale is for ‘share in the "economic success" of his work’ and not for the painting as goods
royalties linked to the onward sale are therefore deemed outside of scope.
Player transfer fee transaction
in this case, the original purchase would have not gone through unless further consideration in relation to the onward sale is agreed at the point of the original sale
the basis for the transaction is a contract specifically agreed between parties
there is no statute which, irrespectively of any contract, would entitle the original seller to a share of future transfer proceeds
there is therefore a direct link between the parties to the contract, in relation to the original and the onward sale
the transaction is within standard rated VAT.
Other related VAT guidance you may be interested in: