In our last bulletin, we reported on the Advocate General's ruling that bridge and similar activities involving mental (but not physical) skill and exertion are sports within the meaning of VAT law.
The full European Court (the CJEU) has since handed down its judgment. Its decision may disappoint charities hoping to take advantage of the VAT exemptions available to non-profit sporting organisations: the CJEU reached the opposite conclusion from the Advocate General.
The English Bridge Union (EBU) runs contract bridge tournaments and claimed that tickets to enter these tournaments should be VAT-exempt. HMRC disagreed. The litigation reached the Upper Tribunal, which decided to refer the case to the CJEU, asking whether:
- to be a "sport" within the meaning of the exemption, an activity must involve a physical element that is material to its outcome, or whether it was sufficient that it involved a significant mental activity material to its outcome; and
- contract bridge was a sport.
The CJEU reasoned that, since the VAT Directive does not define "sport", the meaning of the term must be determined "by considering its usual meaning in everyday language, while also taking into account the context in which it is used and the purposes of the rules of which it is part".
Typically, the word "sport" is used for activities of a physical nature (although the UK Parliament took a different view when defining "sport" in the Charities Acts 2006 and 2011). It is settled case law that VAT exemptions must be interpreted strictly. In the CJEU's view, the context of the exemption favours an interpretation of "sport" that is limited to activities "characterised by a not negligible physical element". Although the court acknowledged that bridge can produce physical (as well as mental) health benefits, "the fact that an activity promotes physical and mental health is not, of itself, a sufficient element for it to be concluded that that activity is covered by the concept of 'sport' within the meaning of [the VAT Directive]". Including activities such as bridge within the definition would be incompatible with the need to construe exemptions narrowly. In answer to the questions referred to it, the CJEU concluded:
- that, to be a "sport", an activity must include a not negligible physical element; and
- bridge was not a "sport" within the meaning of Article 132(1)(m).
Interestingly, however, the CJEU offered a possible alternative route to VAT exemption. European VAT law allows Member States to exempt "the supply of certain cultural services, and the supply of goods closely linked thereto". The CJEU suggested that organisations promoting activities "with a physical element that appears to be negligible" could be providing such services, "if the activity, in the light of the way in which it is practised, its history and the traditions to which it belongs, in a given Member State, holds such a place in the social and cultural heritage of that country that it may be regarded as forming part of its culture."
It will be interesting to see what the Tribunal makes of this suggestion when it returns to the EBU's case.
In the meantime, the ruling confirms the inconsistency between the definition of "sport" for the purposes of charity law (where "sport" encompasses "sports or games which promote health by involving physical or mental skill or exertion") and the definition applying for the purposes of VAT law (where an activity must include a "not negligible physical element").
If you require further information on anything covered in this briefing please contact James Maloney, Rachel Holmes or your usual contact at the firm on 020 3375 7000.
This publication is a general summary. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, December 2017