ECJ to rule on whether "green fees" charged to non-members of golf clubs should be exempt from VAT

The Upper Tax Tribunal has asked (13-page / 59KB PDF) the EU's highest court to rule on whether the fees should be considered "additional income" for clubs. Although not-for-profit sports clubs are generally exempt from VAT under European law, the exemption does not apply to transactions that amount to direct competition with commercial businesses which have to charge VAT.

Last year the First-tier Tribunal ruled that green fees charged by Bridport and West Dorset Golf Club, which had previously been subject to VAT, did not amount to "additional income" as the "supply of the right to play golf" was, for VAT purposes, identical regardless of whether it was made in return for a membership fee or for a green fee. The decision was subsequently appealed by HM Revenue and Customs (HMRC).

Addressing the Upper Tribunal, HMRC said that guidance from the ECJ on the meaning of the phrase was necessary in order to come to the right answer. The Tribunal agreed, saying that the legal meaning of additional income was "so critical" to its decision that it required guidance from the ECJ. It has also asked whether European VAT laws require the exemption to be applied in such a way as to eliminate all distortions of competition between private members' clubs and commercial businesses.

Bridport and West Dorset Golf Club provides facilities for the use of members and non-members, with any profits held on trust for the members of the club. In the past it charged VAT at the standard rate on green fees paid by non-members, however, in 2009 it tried to recover the tax it had accounted for on those transactions arguing that they should have been exempt from VAT. In 2011, the First Tier Tribunal agreed with the club.

In deciding to refer the matter to the ECJ, Mrs Justice Proudman of the Upper Tribunal noted that the First-tier had already said that, when it allowed non-members to use its facilities, the club's activities were "materially indistinguishable from" - and so in direct competition with – services offered by commercial organisations which were subject to VAT. However this did not necessarily mean that green fees were "additional income", as the law was unclear on whether this related to income derived from the club's "core activity" or to income from activities not normally carried out by the club.

"Despite [the club's] cogent and persuasive submissions, it seems to me that the meaning of 'additional income' is critical to the decision on the issue before me," Mrs Justice Proudman said in her ruling. "Does it simply mean 'more income' thus bearing no particular emphasis, foes it mean 'additional to income from sport/the core exempted activities', as [the club] submits, does it mean 'income from an activity not of a kind customarily made' by the Club, as the First-tier Tribunal found, or does it bear a wider meaning ... enabling HMRC to exclude the supply of services to non-members?"

She added that, given the number of cases waiting to be resolved on the issue, she would feel "considerable unease in refusing to refer the matter to the ECJ".

"It is true that such a reference may involve delay, but it does not seem to me that this is a logistical reason sufficient to outweigh the need for a reference," she added.

In a statement on its website, the golf club said that it expected the ECJ to hear the case in "mid-late summer 2013" and that it remained "confident of a successful outcome".

The case is one of 458 related appeals by golf clubs on the issue and there are "many other connected appeals about distortion of competition between commercial golf clubs and non-profit-making members' clubs", according to submissions made to the Tribunal. If successful, Bridport is seeking to recover over £140,000 worth of output tax paid before 2009.