Every man, woman, child and pet on this side of the Atlantic knows that Spain
beat Italy 4-0 to win the Euro 2012 soccer championship. Fewer people know that
the Israel Tax Authority recently beat a cluster of Israeli soccer teams in the
Tel Aviv District Court and will start collecting 16 percent VAT on transfer
fees paid when foreign soccer players are transferred from overseas teams (Bnei
Yehuda Bros. and Maccabi-Absalom Petah Tikva – Soccer Department vs VAT
Director Tel Aviv 3, Tax Appeals 1200/07 and 1052/08 among others, handed down
June 6, 2012).
A number of other Israeli soccer teams had open legal
cases that are also covered by this judgment, including Betar Jerusalem, Ironi
Ashdod, Maccabi Netanya, Hapoel Bnei Sachnin and Kiryat Shmona.
all famous teams in Israel.
It seems this VAT should have been collected
as far back as 1975 when the VAT Law was first enacted.
Some of the fact
Under Israeli regulations and FIFA international football rules, professional
soccer players are each adopted by a club that trains them from a young age and
employs them. The Federation Internationale de Football Association (FIFA) is an
association governed by Swiss law that was founded in 1904 and is based in
Zurich. A player’s status is recorded on a “Player’s Card.” If another soccer
club wants to buy or borrow the player, detailed rules must be met. Both the old
club and the player must agree to this before the new club can acquire the
The ITA sought to impose 16% VAT on the resulting transfer
fees paid by Israeli clubs to bring foreign players to Israel. This is a blow to
Israeli soccer clubs because they are classified as nonprofit bodies that cannot
recover VAT on their expenditure. And it seems this obligation has existed ever
since the VAT Law was enacted in 1975.
Israeli VAT liability in a
Section 2 of the VAT Law, 1975, imposes VAT on transactions in Israel
and the importation of goods. Goods are defined as “including... a right, right
of enjoyment and other intangible assets including...
excluding securities and commercial paper and the rights in
Services provided to Israeli residents are also subject to VAT, in
principle. The standard rate of VAT is currently 16%.
What type of
transaction is a player transfer?
The judgment discusses at length what
transaction actually occurs when a foreign player is transferred to play in
Israel. The taxpayer claimed that the soccer players are not goods, they provide
services, transfer fees are paid for breach of a contract abroad and the
Player’s Card might even be considered commercial paper outside the scope of
The court ruled that transfer fees are payment for the agreement to
transfer players, and the Player’s Card represents a right with economic value
that can be transferred and sold. The Player’s Card bestows upon the club
holding it the ability to transfer it to other clubs and to receive
consideration for the transfer. The transaction represents the sale of an
economic right derived from the employment of a player.
The payment is in
practice for the release of the player from his contract with one club to enable
him to sign a new contract that pays for his release.
typically include rights to employ players in the fixed-assets section of their
The court found there is no breach of agreement
because in the cases under review the transfers took place by way of agreement
between the old club, the new club and the player. Furthermore, the player is
not actually sold; he enters into a separate agreement with the acquiring club,
which specifies the salary to be paid to him and other payments.
The court ruled that the term “goods” in the VAT Law includes intangible
assets such as the Player’s Card. When an intangible asset originating abroad is
“consumed” in Israel, this represents an import of “goods” for VAT purposes
(i.e., is subject to 16% VAT) even if the consumer is a soccer club. The owner
of the “goods” is the “owner, importer, exporter, consignee or agent of such
“goods” and anyone with a right of enjoyment, or control... No right to receive
service is acquired. The time of use is when the player arrives in
Is a Player’s Card ‘commercial paper’?
As mentioned above,
securities and commercial paper are excluded from the definition of “goods”
subject to VAT.
The court said commercial paper is not created by
contract but by the legislation or custom.
However, the court concluded
that a transfer of a Player’s Card is accompanied by a contractual commitment
between the parties and FIFA rules that set forth the terms of the transfer and
Therefore, the Player’s Card is not a marketable
Change of policy?
The taxpayer claimed there was a change of
policy by the ITA that necessitated fresh legislation. The court ruled there was
no change of policy, just tighter enforcement.
The court ruled
that transfer fees for foreign soccer players are payments for imported
intangible assets that are liable to VAT, currently 16%.
enforcement by the ITA seems to come late in the day. It remains top be seen
whether any appeal will be lodged against this case. Subject to this, the same
VAT liability will presumably apply to transfer fees for players transferred
And VAT may soon need to be paid on other imported
intangibles and imported services by private individuals (including children)
unable to recover the VAT, such as:
• Smartphone applications
university tuition fees
• Use of foreign databases
• Right to present foreign
theatrical and musical productions • Online subscriptions.
government really wants to collect this VAT, a clear procedure will need to be
specified; since 1975 the situation has been muddled.
that are “exempt dealers” for Israeli VAT purposes (with annual revenues below
NIS 76,884) will presumably face a similar irrecoverable liability.
for ‘authorized dealers’
Authorized dealers for Israeli VAT purposes should
consider collecting and recovering VAT on imported intangibles and services
under “reverse charge” (self-assessment) provisions in the VAT
The result should be no effective VAT liability, provided
the VAT recovery takes place within six months.
As always, consult
experienced tax advisers in each country at an early stage in specific
email@example.com Leon Harris is a certified public accountant and tax
specialist at Harris Consulting & Tax Ltd.