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In the Baumgarten Sports EJEU case, the matter was the time of supply of a German football agent’s services.
Background
As is common in the football world, clubs make payments to agents in order to obtain the services of footballers. When the agent places a player with a football club, it receives commission from that club, provided that the player subsequently signs an employment contract and holds a licence issued by the Deutsche Fußball Liga GmbH (German Football League). The commission is paid to the company in instalments every six months for as long as the player remains under a contract with that club.
The arguments
The German tax authorities took the view that a tax point was created when Baumgarten Sports services were complete – when the contract was signed, and that output tax was due in full at that time The appellant contended that the rules for “successive payments” applied and that VAT was due on each six monthly payment.
Legislation
The issue is covered by Articles 63 and 90 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (‘the VAT Directive’).
Decision
The supply of services gave rise to successive payments, the chargeable event for VAT occurs and VAT becomes chargeable on expiry of the periods to which those payments relate (re; Asparuhovo Lake Investment Company, C‑463/14).
The chargeable event (tax point) and chargeability of a tax on the supply of the agent’s services must be regarded as occurring, not when the player is placed, but on expiry of the periods to which the payments made by the club relate.
Commentary
It is useful to look at the UK tax point rules for services, which I have summarised here:
VAT must normally be accounted for in the VAT period in which the tax point occurs and at the rate of VAT in force at that time. Small businesses may, however, account for VAT on the basis of cash paid and received.
Although the principal purpose of the time of supply rules is to fix the time for accounting for, and claiming VAT, the rules have other uses including
- calculating turnover for VAT registration purposes
- establishing the period to which supplies (including exempt supplies) are to be allocated for partial exemption purposes, and
- establishing when and if input tax may be deducted
The tax point for a transaction is the date the transaction takes place for VAT purposes. This is important because it crystallises the date when output tax should be declared and when input tax may be reclaimed. Unsurprisingly, get it wrong and there could be penalties and interest, or VAT is declared too early or input tax claimed late – both situations are to be avoided, especially in large value and/or complex situations.
The basic tax point for a supply of services is the date the services are performed.
Actual tax point
Where a VAT invoice is raised or payment is made before the basic tax point, there is an earlier actual tax point created at the time the invoice is issued or payment received, whichever occurs first.
14 Day Rule
There is also an actual tax point where a VAT invoice is issued within 14 days after the basic tax point. This overrides the basic tax point.
Continuous supply of services
If services are supplied on a continuous basis and payments are received regularly or from time to time, there is a tax point every time:
- A VAT invoice is issued
- a payment is received, whichever happens first
Deposits
Care should be taken when accounting for deposits. The VAT rules vary depending on the nature of the deposit. In some circumstances deposits may catch out the unwary, these could be, inter alia; auctions, stakeholder/escrow/solicitor accounts in property transactions, and refundable/non-refundable deposits. There are also other special provisions for particular supplies of goods and services, for eg; TOMS.
Summary
The tax point may be summarised (in most circumstances) as the earliest of:
- The date an invoice is issued
- The date payment is received
- The date title to goods is passed, or services are completed.
Planning
Tax point planning can be very important to a business. the aims in summary are:
- Deferring a supplier’s tax point where possible
- Timing of a tax point to benefit both parties to a transaction wherever possible
- Applying the cash accounting scheme (or withdrawal from it)
- Using specific documentation to avoid creating tax points for certain supplies
- Correctly identifying the nature of a supply to benefit from certain tax point rules
- Generating positive cashflow between “related” entities where permitted
- Broadly; generate output tax as early as possible in a VAT period, and incur input tax as late as possible
- Planning for VAT rate changes
- Ensure that a business does not incur penalties for errors by applying the tax point rules correctly.
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