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HMRC has been defeated in its argument that services provided by a UK-based football agent in connection with a player transfer were subject to UK VAT. But is a replay on the cards?
Following on from a bruising defeat by Gary Lineker at the First Tier Tax Tribunal barely a couple of weeks ago, HMRC has now lost another football-related tax dispute, this time involving VAT on services provided by a football agent.
In the case of Sports Invest UK Limited v HMRC [2023], a footballer was transferred between two European football clubs and, as is typical, the footballer’s agent advised on the deal. The agent, Sports Invest, received a payment of €4m for its work. As Sports Invest was located in the UK, the issue arose as to whether the services it provided in relation to the player transfer were provided to the buying club, in which case they were not subject to UK VAT, or services provided to the player for which a third party had paid, in which case VAT would be chargeable on such payment.
The facts
Joao Mario is a Portuguese international footballer. In August 2016 he moved from Sporting Lisbon to Inter Milan for a transfer fee of €40m. Sports Invest (a UK based company acting as his agent) was paid by Inter Milan for providing services in connection with the transfer. The arrangement concerning Sports Invest’s involvement was as follows:
- There was a player representation agreement made between the player and Sports Invest. Pursuant to this agreement, Sports Invest was to provide agent services to the player on an exclusive appointment basis. The agreement also provided for Sports Invest to use reasonable endeavours to procure that the club buying the player would be responsible for paying its commission, as well as commission of 10% of the player’s new salary. Crucially, Sports Invest also issued a letter of waiver to the player under which it agreed to waive all fees due to it under this agreement.
- Separately, there was also a direct contract between Sports Invest and Inter Milan. Under this contract, upon the player transferring permanently to Inter Milan and him signing a player contract with the club, then Sports Invest would be paid €4m over a twenty-four month period.
HMRC alleged that Sports Invest supplied its services to both Inter Milan and Joao Mario. Consequently, the 10% commission of the player’s gross salary of €30m which was paid by Inter Milan to Sports Invest was subject to VAT. It raised an assessment for unpaid VAT of £438,954 from Sports Invest as the supplier of those services.
Arguments and decision
HMRC argued that, based on the economic reality of the arrangement as a whole, Sports Invest had supplied services to its client Joao Mario to a value of €3m. This supply was subject to UK VAT as it was supplied from a business to a consumer and the UK place of supply rules for VAT provide that this type of supply is treated as taking place in the location of the supplier, being the UK. Effectively the €3m was consideration paid by a third party, being Inter Milan, for taxable services provided in the UK. The remaining €1m payment from Inter Milan to Sports Invest was in respect of services provided to Inter Milan, which was outside the scope of UK VAT (as the place of supply rules deemed that supply to have taken place in Italy, where the business recipient was located).
Sports Invest argued that all of the €4m it received was in connection with supplies of services to Inter Milan and not Joao Mario. The player representation agreement was structured in such a way that the agent was able to be paid by the player’s new club rather than the player himself. This payment model was used by other successful football agents in the UK and enabled them to offer a competitive advantage when compared with other agents whose commission came from their player’s salary and not from the player’s club. In particular, the clause appointing Sports Invest as the player’s exclusive agent was only inserted in order to comply with Football Association rules (as otherwise the contract could not be duly registered with the FA and the agent could not hold himself out as the player’s exclusive agent).
The FTT agreed with Sports Invest. It was not in doubt that services were supplied by Sports Invest to Joao Mario, but these were effectively provided for free under the waiver. Structuring the arrangement in this way made sound commercial sense as it enabled Sports Invest to offer its services to the player but for its remuneration to be funded by the player’s new club (and was described as the flexing of considerable financial muscle in the market). Further, there was no suggestion by any party concerned that the arrangements were a sham.
Therefore, the entirety of the €4m was due under the direct contract for services between Sports Invest and Inter Milan and it was accepted that these services were indeed provided to Inter Milan and not the player, and nor was there any evidence that the payment from Inter Milan was third party consideration for services supplied to Joao Mario. Therefore, the place of supply of the services for which there was monetary consideration was in Italy (a business-to-business supply) and UK VAT was not in point.
Significance of the case
The judgment is quite fact-specific. However, given the vast sums of money involved in top level football transfers, it is understandable that HMRC may be concerned that such structuring enables the provision of services effectively made in the UK and for which a person reaps significant benefit (being Joao Mario), without such services being taxed in the UK. From a public revenue perspective and PR perspective, it will also be interesting to see whether there are renewed calls for scrutiny on the tax affairs of football clubs, particularly given the recent media reporting of possible tax avoidance by clubs in the Premier League.
Given the leeway this decision seemingly gives for the mitigation of VAT by football and other agents, it is quite possible that HMRC will want to settle the score going forward, so an appeal on the decision cannot be ruled out.
If you are seeking advice on the issues raised in this article then please contact Anthony Reeves or Cathy Bryant.
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