Tax tribunal: look to contract for VAT treatment of football agent’s fees

The FTT’s decision in the case (18-page / 417KB PDF) relies almost entirely on its analysis of the facts of the case and underlying contractual arrangements, according to tax experts at Pinsent Masons. There was no suggestion that any of the relevant arrangements were a sham or designed to avoid VAT.

Steven Porter said: “This case shows how important it is to ensure that the contractual arrangements reflect accurately the activities taking place and the value of the services being supplied. The dispute may have been avoided altogether if the contracts had been clearer and had avoided the ‘sloppy’ drafting that was noted by the judge”.

The agent, Sports Invest Limited, a company incorporated and resident in the UK, worked on the 2016 transfer of player João Mário from Sporting in Portugal to Inter Milan in Italy, for which it received a €4 million payment from Inter. HM Revenue & Customs (HMRC) raised VAT assessments in relation to €3m of the fee. It argued that the sum was a third party payment of amounts due from the player to the agent, and that as the player was not a business customer from a VAT perspective, the place of supply of the agent’s services was in the UK and VAT was therefore due.

The agent argued that the whole €4m payment was for services supplied to Inter Milan as a business customer.

The transaction was based on several contractual documents. Firstly, there was a player representation agreement (PRA) between the agent and João Mário, which included an obligation for the player to pay a fee of 10% of his annual income under his employment contract with the club for the duration of the contract. The agent was bound by the PRA to use its “reasonable endeavours” to arrange for this fee to be paid by the transferee club. A second document, a waiver letter, waived the player’s obligation to pay the 10% fee.

The agent also entered into an agreement with Inter in relation to the player transfer; and the player entered into an employment contract with the club. The agreement, which was signed a few days before the transfer completed, obliged Inter to pay the agent €4m, in eight quarterly instalments of €500,000, on successful completion of the arrangements.

In HMRC’s view, looking at the PRA, €3m of the €4m paid by Inter was in fact a payment satisfying the player’s obligation to pay the agent for services supplied to the player, and not to Inter. HMRC focused on the fact that the agreement between the agent and Inter was not signed until a few days before the transfer, after most of the agent’s work had already been done.

The agent, arguing that the full €4m was payable for services supplied to Inter, said that the player fee was contained in the PFA for two reasons: to protect the agent’s position by ensuring that the player remained exclusively contracted with that agent; and to follow the Football Association (FA) template, so that it did not need to be separately approved by the FA.

Applying principles of VAT interpretation from the Newey/Ocean Finance cases, the FTT found that the potentially VATable services supplied by the agent to Inter could be and were in fact supplied before the contract between them was formalised, so the date of that agreement was not relevant to the determination of the question. It also found that the waiver letter removed the player’s obligation to pay as well as the agent’s right to enforce and that the agent did not, as a matter of fact, exercise its right to pursue that fee from Inter. As a result, there was no consideration given for the supply of services to the player and therefore no charge to UK VAT.

The FTT accepted the agent’s argument that the contractual arrangements were commercially realistic, because the ability to provide services to a player without charging them a fee gave the agent a significant commercial advantage over other agents.

Ian Robotham of Pinsent Masons said: “HMRC has been increasingly interested in the tax arrangements of football players, agents and clubs over recent years”.

“While this particular case concerns the VAT treatment of agents’ fees, the employment tax consequences of arrangements with agents are also in focus. The FTT in this case recognised that agents are playing a dual role, acting for both player and agent. However, the employment tax consequences of that conclusion were not in the scope of this decision, so there remain issues to be resolved,” he said.