Will there be VAT on Juventus' sale of Paul Pogba for €100m?

In August 2016 Juventus will release Paul Pogba from his contract to play for Manchester United.  In return for Juventus' withdrawal of their right to hold Mr Pogba on their roster, Juventus will accept a one-time transfer fee of €100m from Manchester United - a new world record.  How VAT will ultimately be charged on this transaction is only known to the VAT departments of each club - but those of us on the outside can still make a reasonable guess based on the well known VAT laws and principles.

In the European system of VAT tax is charged on all 'supplies' made for 'consideration' in the course of carrying out an 'economic activity'.  An economic activity includes any form of trading, and to avoid any doubt:

"The exploitation of tangible or intangible property for the purposes of obtaining income therefrom on a continuing basis."¹

This would presumably include the bi-annual contract dealing of football clubs across Europe.  Thus it is likely that European tax authorities in each jurisdiction keep a close eye on transfer season for reasons that go beyond their general love of football.

Where is VAT charged

Business to business (B2B) transactions involving services within the EU are generally treated as being supplied in the country to which the customer is resident (the exceptions to this include services in relation to transport, property and art).  As the supply in this case is the exercise of an intangible right none of the exceptions are activated and thus the general rule applies.  Even so, to avoid doubt the EU VAT directive provides that:

"obligations to refrain from pursuing or exercising, in whole or in part, a business activity or a right"

are B2B supplies to be taxed in the jurisdiction of the customer.²  Thus, the supply is likely to be treated as being made in the UK and Manchester United will be liable to pay VAT on-top of whatever price they pay to Juventus for the right to sign Paul Pogba.

The Net Impact

The UKs rate of VAT is 20%, meaning that Manchester United would be chargable to the equivilant of €20m in VAT upon completion of the sale.  However, they would also be entitled to immediately claim back that €20m as an input-tax credit.  Thus the net impact is zero. 

As professionl football clubs are required to be registered for VAT, we can assume transfer season has few negative tax impacts on European clubs.  For another example see Tottenham vs The HMRC.

However with the complex nature of VAT it is always important to know precisely why, and to ensure all relevant steps are followed to make sure no €20m mistakes are made!

Notes

All references are to EC 2006/112 unless otherwise stated.

1.  Article 9(1)
2.  Article 56(1)(d)