As if Corona hadn’t already caused them enough problems: Now many sports clubs are also threatened with trouble with the tax office. Unlike before, in most cases they can no longer be exempted from sales tax on membership fees and other proceeds. This is what the Federal Fiscal Court (BFH) decided in a judgment published on Thursday (Ref. VR 48/20). The full tax rate of 19 percent would probably be due on the majority of all income from the clubs – and that would not only apply to the future, but also to income in all decisions by the tax offices that are not yet legally binding.
There are more than 87,000 sports clubs in Germany, most of which may be recognized as non-profit by their local tax office. Nevertheless, they should all make the judgment of the BFH for now. Even “the promotion of sport” is admittedly according to the tax code a purpose to “selflessly promote” the general public. That’s why the state grants these clubs tax benefits – actually including sales tax. However, the requirements for this in the VAT Act are extremely narrow, especially for sports clubs. This does not cover contributions for which a member can use the club’s own sports facilities in return. The BFH had already decided that in another case. Although the tax offices were generally more generous here and also granted the sales tax bonus on membership fees – the case law sees it “fundamentally differently” on the basis of the applicable laws, according to the BFH.
Clubs no longer have a choice
So far, the clubs have also been able to invoke the so-called Value Added Tax System Directive to claim tax relief on other income. However, this way is blocked after a judgment of the ECJ and the decision of the BFH that has now taken place. Clubs no longer have the choice of whether they want to be considered non-profit and therefore exempt from sales tax or as a commercially active company that pays sales tax but can also claim the financially favorable input tax deduction for investments. Now only the sales tax law applies – and that only provides for the tax bonus for the participation fees for sporting events.
The German Olympic Sports Confederation (DOSB), the umbrella organization for sports in Germany, is still deliberately relaxed. The decision does not affect the vast majority of clubs, said a spokesman for the SZ. “This applies in particular with a view to the continued VAT exemption for membership fees.” The judgment will now be evaluated and should also be a topic in the next meeting of the DOSB with club and association representatives as well as tax lawyers.
Judges call for better regulation in the law
In the specific case, it was a golf club that, in addition to membership fees, also earned income from fees for using the golf course or renting caddies. The tax office demanded sales tax on these proceeds, also because they had doubts about the non-profit status of the association. The golfers have complained against the decision since 2015 through the authorities.
The fundamental judgment of the BFH now affects all sports clubs – even if they are undoubtedly non-profit. However, and the judges explicitly pointed this out, the legislature could solve the problem: the requirements could be adjusted overall in such a way that club sports are exempted from sales tax to a greater extent. “This has been discussed in the professional world for two decades without the national legislator having taken up such considerations,” says the BFH. Lawyers assume that then both membership fees and many other incomes could benefit from the tax bonus again – even retrospectively.