See the AGCO application to Europe on VAT
On 17th December 2013 we lodged an application to the European Commission, asking them to take infraction proceedings against the United Kingdom for breaking the law on VAT.
There are several issues
- Distortion – we got a ruling in the Chipping Sodbury case that there is distortion between member clubs and proprietary ones. European VAT law specifically wants to eliminate distortion. The UK refuses to address this.
- Fiscal neutrality – that’s about similar products being treated the same for VAT. We say the golf experience at a members’ club and a proprietary club is identical. We say there isn’t a clear cut difference between the two and many members’ clubs are probably proprietary!
- The VAT Sports Order 1999 – that’s the loopy legislation that describes proprietary clubs as being “subject to commercial influence” but doesn’t think there is any commercial influence in a club taking £1 million in green fees or running a 16 bedroom dormy house – aka a hotel!
- The introduction of the concept of “sports land”. That’s the gem that stops a golf course owner from granting a licence to his members’ club. That is unless the owner has a seat in the House of Lords, is an Oxbridge College or the course is on common land!!
Here is a link to the full application. It is in three parts, i.e. the main claim, the claim form and the list of documents. Look at the main claim. Read the introduction and then skip to section 4, page 8. The part before that simply recites all the boring legislation.
Will – the first one is labelled AGCO VAT Distortion Complaint to EC, Second is the claim form. Third is list on documents.
VAT background – Distortion
The VAT distortion started in 1993 when the Central Council of Physical Recreation (CCPR) persuaded the UK of the need to exempt certain services closely linked and essential to sport supplied by non-profit making concerns. This immediately caused distortion between members’ clubs and proprietary ones. AGCO’s first protests about distortion were on 16th December 1993 to Michael Portillo, then Treasury Secretary, to Customs and Excise and some MPs.
The Government agreed to do something about the distortion by granting the exemption to membership fees only but not green fees. The Paymaster General, Sir John Cope, wrote to Richard Salt’s MP in 1994 assuring him this would reduce the distortion. We have presented that letter as evidence. Richard owns Horsley Lodge in Derbyshire and like many of us has been on the VAT fight for 20 years!
In 1995 Customs and Excise invited AGCO to give evidence on their behalf in a claim from the Norwich City Council about sports facilities. Customs said that the council’s fees couldn’t be VAT exempt because this would cause distortion.
In the Chipping Sodbury Case in 2012 the judges made a finding of fact that there is distortion between member-owned clubs and proprietary ones. HMRC refuses to take any notice of this ruling and asks how we can show or prove there is distortion! Other than get a judge to rule that there is distortion we don’t know what HMRC wants. And we have that ruling! All HMRC and the Treasury say is that Europe envisages distortion and tolerates it in sport!
If you want to see the legislation on distortion in VAT it is at Paragraph (4) of the preamble to Principal VAT Directive (PVD) and reads:
“The attainment of the objective of establishing an internal market presupposes the application in member States of legislation on turnover taxes that does not distort conditions of competition or hinder free movement of goods and service. It is therefore necessary to achieve such harmonisation of legislation on turnover taxes by means of a system of value added tax (VAT) such as will eliminate, as far as possible, factors which may distort conditions of competition, whether at national of Community Level.”
The gist of this is that VAT law says that if two products are identical to consumers they should be treated the same for VAT purposes. That’s in Paragraph (7) of the preamble to the PVD – get the jargon! – and reads:
“The common system of VAT should, even if rates and exemptions are not fully harmonised, result in neutrality in competition, such that within the territory of each Member State similar goods and services bear the same tax burden, whatever the length of the production and distribution chain.”
The key thing about the fiscal neutrality argument is that the experience for a member at a proprietary club is identical to that of a member at a members’ club. So is it for a green fee player. That’s why we keep harping on about the members’ club at every proprietary course. That’s the affiliated club. Remember that when every new course was built the English Golf Union insisted we all had to have a members’ club at the course, with its committee, democratic AGM, a constitution the EGU approved, a committee to deal with handicaps. And that is the club affiliated to EGU and counties. And that is why the experience of golfers is identical at the two types of clubs. God bless the EGU for that!
Then of course there are associate members at clubs who have no vote or share. Again, the experience is identical at clubs.
There are various cases on fiscal neutrality. HMRC tries to say it only applies to similar products and has nothing to do with competing suppliers. We have referred them to a case called Gregg which seems to support what we say about fiscal neutrality. It’s there in paragraph 20 of Gregg.
Will – then a link to Gregg case
The VAT Sports Order of 1999
That’s the piece of nonsense that started the “subject to commercial influence” definition. A proprietary club is considered to be “subject to commercial influence”, while a club like Sunningdale taking £1.3 million in green fees isn’t. And nor is Royal Lytham, with its 16 bedroom dormy house aka hotel!
This was because Abbotsley GC and Chobham GC beat the VAT man in 1997 and they retaliated. Both clubs had arrangements where their members’ clubs, set up in accordance with the EGU diktat, took in the subs VAT exempt and then paid a licence fee to the club owner. VAT Tribunals approved their setups. The VAT man and Labour Government drew up the proposed VAT Sports Order in 1998 and then found they had made a dreadful whoopsy and the posh members’ clubs were going to get caught in the net. So they re-thought it and it became the VAT Sports Order of 1999.
The debate on the Sports Order in October 1999 was a real gem. The Conservative and Lib Deb Opposition ridiculed Labour’s proposed legislation, muttered “distortion” and vowed to do something about it. Oliver Letwin was particularly vociferous in protesting about the distortion. Oh dear. As soon as they are in power again, they get a touch of amnesia about resolving it. Funnily enough, Oliver Letwin is the MP for Bridport and West Dorset – our good friends who have made the distortion even worse.
We say that the VAT Sports Order of 1999 was unlawful. And the ruling in Bridport seems to support that. Anyway, that’s what we are asking Europe to consider!
Article 135 of the PVD (the Principal VAT Directive!) sets out other exemptions, one being Article 135 (l), for leases and licenses and interests in land. Member States are allowed to set certain definitions for this, mainly because conveyancing and land law varies so much under different legal systems. At the same time as the VAT Sports Order the UK invented something called “Sports Land”. That was engineered specifically to stop the arrangements like Abbotsley and Chobham, and a licence (or lease) from the club to the owner.
We are protesting to Europe that the exemption for land in Article 135 shouldn’t be used to stop the sports exemption in Articles 132 to 134. The Bridport decision probably supports this. Hoorah.
So the combination of the VAT Sports Order 1999 and the definition of sports land is why the owner of a golf course can no longer allow his members’ club to collect the main golf subs VAT exempt and pay the owner a rent.
That’s unless the club owner has a seat in the House of Lords, or the course is owned by an Oxbridge College or on common land! One fitness club kept on with the Abbotsley type arrangement, under guidance from accountants, and has been bankrupted. Two golf clubs are still at loggerheads with HMRC over the arrangement.