Italian place of supply for €4 million football transfer fee

In Sports Invest UK Limited v HMRC [2023] TC08797, the First Tier Tribunal (FTT) dismissed HMRC's claim that commission paid to the appellant by Inter Milan was subject to UK VAT, as a supply of services to a footballer. The services were supplied to Inter Milan and the place of supply was Italy, not the UK.

• Sports Invest UK Ltd (Sports Invest) provided intermediary services to football players and clubs.
• In 2016, it had a representation agreement with Portuguese International, Joao Mario, who at the time played for Sporting Clube de Portugal (Sporting).
• Sports Invest was approached by Inter Milan with a view to signing Joao Mario.
• A deal between the two clubs and the player was negotiated by the appellant for €40 million, securing the player €30 million a year in salary.
• The player's agreement with Sports Invest entitled the agent to 10% of any salary payable as a result of a transfer negotiated by themselves, which under the terms of the Inter Milan deal would have been 10% of €30 million - €3 million.
• Sports Invest also signed a waiver, at the same time as the representation agreement, waiving their right to the 10% provided that they were involved in the deal from start to finish.
• As part of the deal, Inter Milan agreed to pay Sports Invest €4 million on completion, payable in quarterly instalments from September 2016 to June 2018. This was included in a separate representation agreement between Sports Invest and Inter Milan, signed on 25 August 2016.
• The player transfer took place on around 28 August 2018. 
• HMRC contended that €3 million of the fee paid by Inter Milan was to cover the 10% included in Joao Mario's representation agreement and was third-party consideration paid for services supplied to the player.
• Under the rules determining the Place of a Supply of services, supplies to a non-taxable person take place where the supplier is established. Supplies to a taxable person (acting in that capacity) take place where the recipient is established.
• HMRC issued assessments on the basis that the supply was to the player, a non-taxable person, and so the place of supply was the UK and UK output VAT was due. The appellant appealed. 

The FTT took the approach of the Court of Appeal in HMRC v P Newey [2018] EWCA Civ 791. The principle applied was that there must be a legal relationship between the supplier and the recipient for there to be a taxable transaction and this is established by examining the economic and commercial realities involved. These may or may not be reflected in the contractual terms. The FTT found that:

• Despite the lack of a signed contract between Inter Milan and Sports Invest until 25 August 2016, the majority of services had been provided by that point. This was evidenced by the fact that a number of the negotiated terms were present in the contract.
• The transfer took place days later and the Inter contract also ceased to have effect on 31 August 2016, so all services were supplied by then.
• The waiver letter was given to the player on 1 August 2016 and waived the 10% fee due by the player in its entirety.
• Whilst there were clearly services provided to the player, there was no consideration paid for them and as such, no taxable supply. Not requiring consideration gave the appellant a competitive edge over rival agents and this commercial reality was reflected in the contractual waiver.
• All of the contractual, economic and commercial evidence pointed to the payment from Inter Milan being made for the appellant securing an employment contract with the player and the transfer of the player's registration, none of which would have happened without great effort on Sports Invest's part.

The appeal was upheld.

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External link

Sports Invest UK Limited v HMRC [2023] TC08797