This CJEU case reviewed the VAT treatment of green fees paid by non-members to golf clubs as a result of a request for a preliminary ruling from the UK Upper Tribunal. Specifically the case examined whether the payment of green fees fell within the category of the specific exemption provided under Article 132(1)(m) of Directive 2006/112 which provides for an exemption for “the supply of certain services closely linked to sport or physical education by non-profit-making organisations to persons taking part in sport or physical education”.

Background

Bridport and West Dorset Golf Club Limited, a private golf club, had as it objects maintenance and management of the club for the use and accommodation of its members and visitors, in addition to other related activities.

In September 2009, approximately half of the company’s members were full members with access to the club’s course allowing them to play at any time, seven days per week, for a standard annual fee. Visiting non-members were also able to play on payment of an access charge per round known as a ‘green fee’, or on payment of a higher rate per day.

For the financial year ending 30 September 2009, income from green fees represented almost 19% of Bridport’s income with annual subscriptions from members in the region of 56%, and the balance coming largely from bar takings.

The company sought reimbursement from HMRC of output VAT in excess of £140,000 that it claimed had been overpaid in respect of its income from green fees paid by non-members. The claim was founded on the judgement in Case C-253/07 Canterbury Hockey Club and Canterbury Ladies Hockey Club [2008] ECR I-7821. HMRC rejected that claim at which point the company appealed to the First-tier Tribunal.

The relevant legislation at issue in the case was EU Directive 2006/112 (“the Directive”) and specifically whether an exemption was available under Article 132(1)(m).

The First-tier Tribunal allowed the appeal, holding that there was no difference in the right to play golf on Bridport’s course whether that right was granted to members of the club or to non-members paying the green fees and that as a result those fees were exempt from VAT under the Directive. The Commissioners for HMRC appealed that judgment to the Upper Tribunal.

According to the Upper Tribunal, Bridport’s status as a non-profit making organisation as required under the provisions of Article 132(1)(m) was not in dispute. Nor was it disputed that the supply made consisted of granting visiting non-members the right to use the golf course was closely linked to sport and was provided to persons taking part in sport which was essential to the transactions exempted, as required under Article 134(a).

The dispute concerned whether it was lawful to exclude that supply from the exemption under Article 132(l)(m) on the basis of either Article 134(b) or Article 133(d) of the Directive.

The Upper Tribunal decided to stay proceedings and referred the following questions to the European Court for a preliminary ruling:

1. When applying Article 134 and Article 132(l)(m) in the circumstances of a body accepted what supplies, if any, constitute “the transactions exempted”?
2. Can the exemption under Article 132(l)(m) be restricted by reference to whether the services of granting a right to play golf are made to a member of the non-profit-making organisation?
3. Is exemption restricted to supplies which are “closely linked” (in the sense of peripheral) to the “transactions exempted” or to any supply falling within Article 132(1)(m)?
4. In circumstances where the non-profit-making organisation by reference to its publicly stated aims, regularly and consistently permits non-members to play golf, what is the interpretation to be placed on the “basic purpose” of making the charge to non-members?
5. For the purposes of Article 134(b) to what must the “additional income” be additional?
6. If income derived from providing access to sporting facilities to non-members is not to be treated as “additional income” can a Member State exclude such income from exemption if it is likely to cause distortion of competition to the disadvantage of commercial enterprises subject to VAT.
7. Is it permissible to allow a partial restriction i.e. permitting exemption for the supply of the right to play golf to members but not to non-members where both membership and non-membership supplies are in competition with commercial organisations?
8. What, if any, is the difference in requirement between Article 133(d) which requires a “likely distortion of competition” and that in Article 134(b) which envisages only the existence of direct competition?’

Decision

The relevant legislation in question was outlined by the court in some detail.

Firstly, Article 133 of the Directive which provides that a number of conditions must be met by Member States in granting to bodies one of the exemptions provided for in Article 132(1).

The conditions therein are as follows:

1. the bodies in question must not systematically aim to make a profit, and any surpluses nevertheless arising must not be distributed, but must be assigned to the continuance or improvement of the services supplied;
2. those bodies must be managed and administered on an essentially voluntary basis by persons who have no direct or indirect interest, either themselves or through intermediaries, in the results of the activities concerned;
3. those bodies must charge prices which are approved by the public authorities or which do not exceed such approved prices or, in respect of those services not subject to approval, prices lower than those charged for similar services by commercial enterprises subject to VAT;
4. the exemptions must not be likely to cause distortion of competition to the disadvantage of commercial enterprises subject to VAT.

Secondly, Article 134 of the Directive was considered which provides that:

‘The supply of goods or services shall not be granted exemption, as provided for in Article 132(1), in the following cases:

1. where the supply is not essential to the transactions exempted;
2. where the basic purpose of the supply is to obtain additional income for the body in question through transactions which are in direct competition with those of commercial enterprises subject to VAT.’

The relevant National Law at issue in the case was then considered, in particular Item 3 of Group 10 in Schedule 9 to the Value Added Tax Act 1994 which provides for the exemption of:

• ‘The supply by an eligible body to an individual, except, where the body operates a membership scheme, an individual who is not a member, of services closely linked with and essential to sport or physical education in which the individual is taking part.’

Note 2 provides:

• ‘An individual shall only be considered to be a member of an eligible body for the purpose of Item 3 where he is granted membership for a period of three months or more.’

The Court then considered each of the preliminary questions outlined by the Upper Tribunal.

Questions 1 to 5

The first five questions were considered together, as each required the Court to consider whether Article 134(b) must be interpreted as excluding from the exemption in Article 132(1)(m) a supply of the services in question by a non-profit-making body to visiting non-members.

The Court observed that the exemption in Article 132(1)(m) covers taking part in sport and physical education in general and does not require that the sporting activity be practised at a particular level or in a particular way. The objective of the provision is to encourage certain activities in the public interest and to promote such participation by large sections of the population. Case C-18/12 Město Žamberk [2013] ECR I-0000 was cited in support of these observations.

Given that access to a course is necessary in order to play golf, the supply was clearly closely linked to sport within the meaning of Article 132(1)(m). This was the case regardless of whether the individual concerned played on a regular/organised basis or in order to participate in competitions.

As a result, it followed that if the supply is provided by a non-profit-making body, the exemption provided for in Article 132(1)(m) was available and it did not matter whether the supply was provided to a member or visiting non-member.

The Court then considered the exclusions from exemption in Article 132(1)(m) provided for under Articles 134(a) and (b) of the Directive.

Under Article 134(a) a supply of services will not be granted exemption where the supply is not essential to the transactions exempted. In the present case it was not in dispute that the supply made was essential to the transactions exempted and thus the test for exclusion under Article 134(a) was not met.

Article 134(b) provides that a supply of services will not be granted exemption where its basic purpose is to obtain additional income for the body in question through the carrying out of transactions which are in direct competition with those of commercial enterprises subject to VAT. This was one of the specific questions addressed to the Court by the Upper Tribunal.

The Court recognised that Article 13A(2) of the Sixth Directive (which preceded the Directive) did not provide for restrictions on the basis of the status of the recipients of the services and as a result Member States have no power to exclude a particular group of recipients from the benefit of the exemption in question (Canterbury Hockey Club and Canterbury Ladies Hockey Club).

In addition, unlike the exemption in Article 132(1)(l) which is expressly limited to supplies of services and goods by the bodies referred to therein ‘to their members’, the exemption for supplies of services closely linked to sport in Article 132(1)(m) is not limited.

Accordingly, the term ‘additional income’ within the meaning of Article 134(b) cannot be construed in such a way that it leads to a restriction in the scope of the exemption in Article 132(1)(m) on the basis of the status of the recipients of the supply (members vis a vis non-members), as that criterion was deliberately excluded when the exemption was defined.

Interpreting the term ‘additional income’ in such a way as to include green fees paid by visiting non-members would lead to such a restriction. Therefore, it followed that the green fees paid for the use of a golf course by visiting non-members do not constitute additional income within the meaning of Article 134(b).

On the basis of all the foregoing the Court concluded that the answer to the first five questions posed by the Upper Tribunal was that Article 134(b) must be interpreted as not excluding from the exemption in Article 132(1)(m) a supply of services consisting of the right to use the golf course to visiting non-members.

Questions 6 and 7

These questions required considering whether Article 133(d) could be interpreted in such a way as to allow Member States to exclude from the exemption in Article 132(1)(m) a supply of services where that supply is made to visiting non-members.

Article 133(d) permits Member States to make the granting of the various exemptions provided for in Article 132(1) subject, in each individual case, to the condition that those exemptions must not be likely to cause distortion of competition to the disadvantage of commercial enterprises subject to VAT. However, this power was found not to extend to the adoption of general measures limiting the scope of those exemptions.

The Court also observed that the scope of the exemptions in Article 132(1) is defined not only by reference to the substance of the transactions covered, but by reference to certain criteria that the suppliers must satisfy. In providing for exemptions defined by reference to such criteria, the common system of VAT implies the existence of different and divergent conditions of competition for different operators. Accordingly, Article 133(d) cannot be interpreted in such a way that it would enable the divergence in the conditions of competition stemming from the very existence of the exemptions provided for under European Union law to be eliminated.

The Court held that the National Legislation at issue in the case referred by the Upper Tribunal does not comply with the aforementioned limits on the power conferred by Article 133(d). The exclusion from that exemption (in Item 3 of Group 10 in Schedule 9 to the Value Added Tax Act 1994) is made on the basis of the status of the recipient of the supply of the service in question even though their status does not alter the substance of the supply, namely, the grant of access to the golf course in order to play golf.

The Court concluded that the answer to questions 6 and 7 is that Article 133(d) must be interpreted as not allowing the Member States, in circumstances such as those in the main proceedings, to exclude from the exemption in Article 132(1)(m) a supply of such services when that supply is provided to visiting non-members. In view of the answers to the previous questions, it was not necessary to consider question 8.

The Court ruled that Articles 133(d) and 134(b) must be interpreted as not excluding from the exemption in Article 132(1)(m) a supply of services consisting of the right to use the golf course to visiting non-members of that body.

The full text of the case is available at http://curia.europa.eu/

Chartered Accountants Ireland commentary

So, is the grass really greener for golf clubs after the CJEU decision? Whilst it may be tempting to welcome the decision which may facilitate reclaims of overpaid output VAT on green fees charged to non-members, readers are reminded that as a consequence, input VAT on related expenditure will not be deductible and accordingly adjustments are required for both retrospective and future claims. There may also be implications under the Capital Goods Scheme in both Ireland and the UK.

In Ireland, the Revenue Commissioners have issued an eBrief (No. 9/14) setting out their position in relation to the case and it is understood that the Value Added Tax Consolidation Act 2010 will be amended at the next available opportunity. In the UK, at the time of going to writing, no guidance is yet available from HMRC.