REGARDING: Application of the reduced value added tax rate of nine percent for the supply of a service for the use of sports facilities pursuant to the provision of Art. 66, para. 2, item 7 of the Value Added Tax Act (VAT) in force from 01.08.2020.

This opinion is issued on the basis of Art. 10, para. 1, item 10 of the Law on the National Revenue Agency for clarification of the application of the provision of Art. 66, para. 2, item 7 of VAT, according to which the reduced value added tax rate of nine percent is applied to the supply of a service for the use of sports facilities, with a view to ensuring uniform tax practice.

1. Content of the norm

In the State Gazette, no. 71 of 11.08.2020 has been promulgated An Act to amend and supplement the Act on Local Taxes and Fees An Act to amend and supplement the LAW ON LOCAL TAXES AND FEES, with which amendments and additions were made to The Value Added Tax Act, concerning the application of a reduced value added tax rate of nine percent.

According to Art. 66, para. 2, item 7 of VAT, the tax rate is 9 percent for the supply of a service for the use of sports facilities. For this supply, the reduced rate of value added tax, according to § 10 of the Transitional and Final Provisions of the Act to amend and supplement of LAW ON LOCAL TAXES AND FEES, applies from August 1, 2020 to December 31, 2021.

This provision introduces into national legislation the possibility of applying a reduced rate for the use of sports facilities provided for in Directive 2006/112/EC on the general system of value added tax (Directive 2006/112/EC) and in particular in . 14 of Annex III “List of supplies of goods and services to which the reduced rates referred to in Article 98 of Directive 2006/112/EC may be applied”.

2. Content of the terms defining the scope of the reduced tax rate under Art. 66, para. 2, item 7 of VAT

As can be seen from the norm, the reduced tax rate applies to the supply of services for the use of sports facilities, therefore the content of the term “sports facilities” for the purposes of applying the norm should be clarified.

2.1. According to the meaning of the expression “sports facilities”

The interpretation of words and expressions used in the normative acts is regulated in Decree No. 883 of 24.04.1974 for the implementation of the Law on normative acts, issued on the basis of § 7 of the Transitional and Final Provisions of the same law. According to Art. 37 of the decree, words or expressions with established legal meaning are used in the same sense in all normative acts. If a deviation from the generally accepted meaning of a word or expression is necessary, an additional provision shall determine their meaning for the relevant normative act.

Legal concepts related to the norm of Art. 66, para. 2, item 7 of VAT are contained in the Physical Education and Sports Act (PFA).

According to Art. 102, para. 1 of the Physical Education and Sports Act sports facility is real estate or part of it, which, according to a detailed layout plan, is intended for sports functions, together with the built and/or installed movable objects and facilities necessary for practicing the relevant type of sport, including the necessary auxiliary and service objects and premises related to its functioning. According to para. 3 of the same legal text, sports facilities are used for the needs of physical activity, physical education, sports, sports-tourism activities and related service and auxiliary activities.

In the sense of § 1, item 14 of the Additional Provisions of the Physical Education and Sports Act “sport for high achievements” is a systematic, high-intensity, scientifically based training and competition activity to achieve high achievements by athletes.

Pursuant to § 1, item 15 of the Additional Provisions of the Physical Education and Sports Act”sport for all” is a health-enhancing physical activity of individuals in their free time through a free choice of individual or organized practice of physical exercises and sports.

Pursuant to § 1, item 15 of the Additional Provisons of the Physical Education and Sports Act “sport for all” is a health-enhancing physical activity of individuals in their free time through a free choice of individual or organized practice of physical exercises and sports.

Pursuant to § 1, item 22 of the Additional Provisions of the same law “physical education” is a process aimed at education, development of human motor abilities, acquisition of skills and knowledge in the field of physical culture and sports.

To the extent that both VAT and special legislation lack a legal definition of the concepts “sport” and “facility”, for clarification their semantic content should be based on their generally accepted meaning.

The term “sport” according to the Dictionary of the Bulgarian language, published on the official page of the Bulgarian Language Institute of the Bulgarian Academy of Sciences, means “physical exercises or games for competition between two countries”. According to the Interpretive Dictionary, the concept of sport has two meanings and means: “1. Uniform physical exercises that are done systematically, periodically comparing their results in competitions. What sport do you practice? and 2. Physical exercises, gymnastics. Sports help to strengthen the body.“.

The term “facility” according to the Dictionary of the Bulgarian language, published on the official page of the Bulgarian Language Institute of the BAS, has two meanings and means: “1. A set of devices, machines, installations and the like that facilitate and support any production activity. 2. Appliances, utensils, accessories. (Fishing facilities. Sports facilities.)”, and according to the Interpretive Dictionary, “facility” has two meanings and means “1. Devices, apparatus and others that are used in a specialized activity. Sport facilities. 2. Building with a specific purpose. A complex architectural facility.”

2.2. According to the practice of the Court of the European Union (CJEU) regarding the content and purpose of the expression “right to use sports facilities”

In a decision in case C-432/15, in item 65, the CJEU accepted that “the concept of ‘right to use sports facilities’ should be understood as referring to the right to use facilities intended for the exercise of sports and physical education, as well as their use for this purpose’. Referring to paragraphs 56-59 of the Advocate General’s opinion in the case, the Court accepts that the possibility of taxing the right to use sports facilities at a reduced rate essentially aims to encourage the practice of sports and make them more accessible to private legal entities.

The Advocate General in case C-432/15, in points 56-59 of his conclusion, to which the CJEU refers, indicated that, in principle, the term “use of sports facilities” should be understood in the sense that it refers to the use of immovable facilities of a permanent (e.g. swimming pools, racetracks, sports halls and fitness centers) or temporary nature (e.g. public squares, coastal or land areas temporarily designated as sports venues for a specific event) by private persons who actually train or compete. In the same conclusion, the Advocate General also pointed out that the concept of “use of sports facilities” covers activities that are strictly related to the practice of sports by private individuals. Therefore, the use of the facilities is a means of practicing sport by private individuals, from which it follows that point 14 of Annex III to Directive 2006/112/EC, as well as Art. 132, par. 1, b. “m” of the same directive aim to encourage the exercise of sports among wide circles of the population. The Advocate General accepts that the purpose of this provision is to encourage individuals to exercise forms of physical activity that, through organized or unorganized form of participation, aim to express and improve physical and mental health, create social contacts and achieve results in competitions.

Regarding the exemption provided for in Article 13, A, paragraph 1, letter m) of the Sixth Directive (Article 132, paragraph 1, b “m” of Directive 2006/112/EC and Article 41, paragraph 4 of VAT ) of the supply of services closely related to sports or physical education, the CJEU ruled:

In paragraph 29 of the judgment in Canterbury Hockey Club, C-253/07 the Court held: “Thus, if the expression “services […] provided […] to persons involved in sporting activities” in Article 13, A, paragraph 1(m) of the Sixth Directive had been interpreted as requiring the services in question to be provided directly to individuals who participate in sporting activities within an organizational structure provided by a sports club, the exemption provided for in that provision would have been subject to the existence of a legal relationship between the service provider and the persons playing sports within such a structure. Such an interpretation would lead to the automatic and inevitable exclusion from exemption of a large number of services essential for the participation in sporting activities, regardless of whether these services are directly related to the persons participating in the sporting activities or to the sports clubs and from the question of who is the actual beneficiary. As the Commission rightly points out, such a result would be contrary to the objective pursued by the exemption provided for in that provision, which is the actual exemption of services provided to private persons participating in sporting activities.’

In the same decision (in the Canterbury Hockey Club case, C-253/07), the Court ruled that in the context of persons participating in sports activities, the exemption provided for by the norm of Art. 132, par. 1, b “m” of Directive 2006/112/EC (the supply of certain services closely related to sports or physical education by non-profit organizations to persons participating in sports activities or physical education), also covers services provided to legal entities and to unregistered associations, insofar as these services are closely related to and essential to sporting activities, and the actual beneficiaries of said services are persons participating in sporting activities.’

Although these considerations of the CJEU are presented in relation to the exemption for supplies, closely related to sports or physical education under Art. 132, par. 1, b “m” of Directive 2006/112/EC, they are also relevant in relation to the application of the reduced rate for the use of sports facilities, since in item 63 of the decision in case C-432/15 the Court accepted, that “the concept of use of sports facilities is related to supplies related to the exercise of sports and to physical education, which should, as far as possible, be considered together (to this effect, decisions of 18 January 2001, Stockholm Lindöpark, C 150/99, item 26 and of 22 January 2015, Régie communale autonome du stade Luc Varenne, C 55/14, item 25)”.

Given the cited practice, it is irrelevant for determining the service for the use of sports facilities whether the recipient of the supply of services closely related to sports activities is a natural person or a legal entity, as long as the end user/beneficiary is a natural person who will use them for sports aims.

3. Scope of application of the reduced tax rate under Art. 66, para. 2, item 7 of VAT

3.1. Sport facilities

For the purposes of application of Art. 66 of the VAT, the concept of “sports facilities” is significantly closer to the definition of “sports facility” by the Federal Tax Service, regulated by Art. 102 of the Civil Code, but while for the purposes of the LAW ON PHYSICAL EDUCATION AND SPORTS and more specifically for regulating the provision of public funds for the construction, renovation and operation of sports facilities, only real estate is included in their scope, which, according to a detailed development plan, are intended for sports functions (together with the built and/or installed movable objects and facilities necessary for practicing the relevant type of sport), it is evident from the practice of the Еuropean Union Court for the purposes of the reduced tax rate, with a view to facilitating and encouraging sports activity, as sports facilities should be also consider those of a temporary nature, specially intended/adapted for a certain sporting event.

From the relevant legal definitions, the generally accepted meaning of the words and the interpretations of the European Union Court, it can be concluded that for the purposes of application of Art. 66 of the VAT, the term “sports facilities” includes both real estate/buildings, as well as the built/mounted/placed/equipped to/in/with them or outdoors devices, utensils, installations and the like that facilitate and support the exercise of sport, both as a systematic training and competitive activity by athletes, and as physical exercises, games and health-enhancing physical activity of individuals.

In general, sports facilities should meet the following characteristics:

• They represent/are connected with real estate on which they are built/installed/marked/placed/marked and equipped;
• Their purpose is to facilitate the practice of sports and physical exercises/activities.

Facilities whose purpose is purely recreational are not “sports facilities”.

• Sports facilities of a permanent nature

As can be seen from the above definitions, sports facilities are usually structures – buildings that are not normally defined as a building. The same may include civil engineering constructions such as stadiums, swimming pools, ice rinks, collodromes, motor stadiums, playgrounds, playgrounds, tracks, motor tracks, go-kart tracks, and the like.

At the same time, without being a facility in itself, halls and other immovable properties that are equipped (furnished) with equipment that is used for sports activity – for example, gyms, are also sports facilities.

More specifically, in view of the practice of the European Union Court and the interpretations of the concept cited above, sports facilities include immovable sports facilities/premises (open or closed, only fenced or fully covered, with or without seating and observation) that are designed, adapted/adapted/adjusted or used for the exercise/practice of sports, physical education and physical activity, such as stadiums, swimming pools, sports halls, gyms, gyms, bowling alleys, race tracks, athletics tracks, game farms, fishing ponds, shooting range, tennis courts, ski facilities (such as lift, towpath, track) , golf course, ice rink, outdoor/outdoor centers that provide activity opportunities.

• Temporary sports facilities

Regarding sports facilities of a temporary nature, it is sufficient if these objects are specially marked/marked/equipped for active sports activities during a specific sports event/event/activity.

Or, in other words, a sports facility should be considered to be temporarily intended for sports events and a correspondingly designated, marked or fenced outdoor or indoor space (for example: a meadow, a playground, a rock massif, a lake, an area designated for sports orientation, a hall (different from sports) etc.), supplied/equipped with the usual equipment for the practice of the respective sport and additional equipment – for example steps for aerobics; dumbbells, rubber bands, balls for gymnastic exercises; soccer or water polo goals; table tennis table; net for volleyball, tennis, badminton; weights for weight lifting, appropriate rock climbing equipment/belaying, orienteering controls, appropriately designated skydiving areas, cross-country skiing trail. The list is not exhaustive, as the usual equipment for the practice of the respective sport should be taken into account.

• Outside the scope of the concept of “sports facilities”

The equipment for practicing the respective sport, which is usually provided and used individually by the practitioners for the respective sport, for example tennis and badminton rackets, ski equipment, skates, bicycles, hockey sticks, etc., are not sports equipment. The provision of the individual devices to the practitioners initially constitutes a rental of movable property and a reduced rate is permissible to be applied only in the conditions of accompanying delivery (see item 4.2.2.)

Non-sports facilities are also facilities designed or used for non-sport activities, for example card game tables, computer or video game rooms or slot machines, escape rooms, party areas without specific sports equipment , amusement parks.

The sauna, jacuzzi, steam bath, salt room and the like are not sports facilities. The purpose of these facilities is for recreation and/or entertainment, recovery.

3.2. Service for use of sports facilities

3.2.1. in view of the right granted

In view of the European Union Court practice set out above, in order for the reduced rate of service tax to be applicable for the use of sports facilities, it should represent:

• granting the right to use facilities intended for the exercise of sports and physical education, as well as
• their use for this purpose.

That is, in order to apply the reduced tax rate, the taxable persons managing the sports facilities must provide them for the use of third parties for the exercise of sports and physical education.

Providing the opportunity to play sports through the use of a sports facility – real estate, is more than simply renting out the sports facility. The delivery of a service for the use of a sports facility includes, in addition to making the sports facility available to the customer, but also the continuous maintenance, supervision and management of the premises/equipment and possibly the provision of additional amenities.

The supply of a sports facility use service is, for example, providing the customer with the opportunity to use sports facilities incidentally on certain days, hours or time intervals or at a time of the customer’s choice, but this use does not initially exclude access to the operator of the facility to the same. Depending on the facility and the type of sport, the access of other persons (customers during the use by one customer or a group of customers) can be restricted (for example, a friendly company rents a basketball hall or a football field to hold the sports game) or vice versa – the use by one customer does not prevent the use by other independent customers at the same time (e.g. running track, go-karting track, etc.) or the use by multiple independent customers is common and intended for the same (so-called group training). Regardless of which of the hypotheses is present, the supply should be treated as a supply of a service for the use of a sports facility, not a rental.

The supply of a service for the use of sports facilities will also be the granting of the right to use the sports facility for a longer period of time, during which time access to other persons is restricted, as long as the operator of the facility continues to maintain the same, exercise supervision and management of the premises and possibly provide additional amenities. For example, granting the right to use a sports field for a period of two weeks to a certain football team to conduct its training under the above conditions.

Insofar as active professional sport, in addition to practice and training, also includes competitive events in front of an audience, it should be emphasized that the service of providing spectators with the opportunity to watch sports events/competitions as an audience in the hall/stadium for a fee does not fall within the scope of the reduced tax rate.

The specifics of a legal relationship in which a sports facility/device is leased and the delivery is taxed at a tax rate of 20 percent is discussed below in item 8 of this opinion.

3.2.2. in view of the specific use

Delivery for the use of sports facilities is defined as providing the opportunity to practice sports or other physical activity by using the relevant facility.

• use of the sports facilities for their intended purpose – for practicing sports

For example, within the scope of the norm is the remunerated provision of the right to use:

– stadium – for athletics and football, for rugby, baseball, etc.;

– pool – for swimming, water polo, water aerobics, diving, etc.;

– tennis courts – for playing tennis;

– ski slope, lift and ski tow – for ski descents, ski aerobics, etc.;

– hiking trails, health trails, lift – for sports and tourist activity;

– rowing canals or reservoirs – for rowing, sailing;

– ice rink – for ice skating, ice hockey or figure skating, short track, curling;

– gym – for exercises in gymnastics, pilates, yoga, stretching, aerobics, fencing, etc. sports;

– sports hall – for handball, volleyball, gymnastics, athletics and others;

– dance hall – for competitive, folk, etc. dances;

– gym – for building the body/bodybuilding with various fitness equipment;

– collodrum – for cycling.

The above examples are not exhaustive, only indicative.

In this sense, to the extent that the sports facility is used for the exercise of sports, the reduced tax rate of 9 percent is applicable to the supply of the service for the use of the relevant sports facility.

• use of sports facilities for purposes other than sports

They are not supplies for the use of sports facilities, for example the provision of a gymnasium or stadium available for family or corporate celebrations, a sports hall – for holding a concert or the provision of a ski slope for filming a film and the like, where the customer’s purpose does not is playing sports, accordingly the use is not practicing sports. For these supplies, the applicable tax rate will be twenty percent.

• use of dual purpose sports facilities

To determine the essence of the complex delivery of a service, its leading element should be determined from the point of view of the average user. For example, the supply of a service for the use of a beach with a built-in pool during the active beach season should generally be treated as a single complex supply, taxable at a tax rate of 20 percent, because from the point of view of the average consumer the main essence of the service is recreation and/or entertainment.

However, when outside the beach season or within the same, but in certain time zones, an opportunity is provided to athletes or other customers to practice swimming/to swim, the supply of the service of granting the right to use the facility is taxable at a tax rate of 9 per hundred.

However, it is possible for dual-use facilities to have a similar volume of use at the same time both by persons practicing sport or other relevant physical activity (in the aspect of the swimming example) and by persons using the same for recreation and entertainment . In such cases, the possibility of applying the appropriate taxation (rate) for each use should not be excluded in relation to such a facility. In these cases, it is the responsibility of the supplier managing the facility to ensure an appropriate organization of use, enabling the implementation of control for the correct tax treatment of the supply, such as placing customers on different colored wristbands, distinguishing sectors or objects for the different types of use of facility or other appropriate measures. In case of such mixed use of the same sports facility, a reliable audit trail should be ensured for the purposes of tax control. It is the responsibility of the taxable person managing the facility to ensure a sufficiently clear distinction between the two types of supplies and to account for this. In the event that such is missing, the tax treatment should be by applying the standard tax rate of twenty percent.

3.2.3. with regard to the recipient of the service

The recipient of the service for using a sports facility can be a natural or legal person, as long as the real user is a natural person who actually uses the sports facility by playing sports or exercising a physical activity similar to sports.

The recipient of the service may be a legal entity, for example, when:

– the recipient is a sports club, and the users are its members;

– the recipient is an employer who purchases cards/vouchers for sports for his staff;

– the recipient is the issuer of a voucher for a specific purpose – the use of a sports facility or the issuer of a card for access to a wide range of sports facilities;

– the person purchasing a voucher/card for the use of a sports facility or for access to a wide range of sports facilities for the purpose of a gift, for example to corporate clients.

In these cases, although the recipient of the service does not personally use the sports facilities for the practice of sports and physical activity, the applicable tax rate is 9 percent, since this recipient obtains the right to use and, accordingly, provides it to individuals practicing sports or physical activity. activity that actually use the sports facilities. To adopt a narrower interpretation of the norm would mean to deprive it of a useful meaning, as the European Union Court has adopted (C-253/07).

3.2.4. in view of the user of the service

The use can be both by athletes (high performance sports) and by persons not practicing sports professionally (sports for all), both for conducting sports activities and training, and for conducting competitions.

In this sense is also the decision of the European Union Court in case C-495/12, item 21, according to which, when providing, for example, a service which consists in granting the right to use a golf course, insofar as access to the golf course is necessary to practice that sport, the same is closely related to sport or physical education, regardless of whether the person concerned plays golf on a regular or organized basis or with a view to participating in sports competitions.

3.2.5. in view of the practiced other types of physical activities/exercises/occupations

As can be seen from the definition adopted by the European Union Court in a decision in case C-253/07, item 65, the reduced tax rate for the use of sports facilities is applicable both to supplies for granting the right to use facilities intended for the exercise of sports, and for those intended for physical education, as well as their use for this purpose. The definitions of “sport for all” and “sports-tourism activity” as health-enhancing physical activity of individuals in their free time through a free choice of individual or organized practice of physical exercises and sports (in the case of tourism activity – in nature), respectively, of ” physical education” as a process aimed at developing the motor abilities of a person, also give reason to assume that facilities intended for exercising physical activities, other than sports, but implying the development of motor abilities, fall within the scope of the reduced tax rate under Art. 66, para. 2, item 7 of VAT.

For example, the following frequently practiced physical activities have such a character:

• yoga

Yoga is a practice that is a combination of different postures, breathing exercises and meditation, strengthening the whole body by activating all the muscles. Practicing yoga significantly increases the body’s flexibility, strength and endurance, and muscle tone, and improves physical and mental health. Therefore, regardless of the fact that it is not formally a sport, but that in addition to physical exercises there is also a significant other content, including philosophy, the exercise of this practice in a hall or in a suitable, dedicated outdoor area, in a group, should be treated as use of a sports facility and the service of providing this use is taxed at the reduced tax rate. Moreover, in the mass case, yoga classes are practiced by focusing primarily on exercising the physical exercises characteristic of yoga practice.

• martial arts/arts

Similarly, a large part of martial arts, although they are called arts and represent, in addition to purely physical practices, also systems of mental and spiritual development, combined with philosophical teachings, the main purpose and emphasis of their mass practice is aimed at physical development and physical activity . This gives grounds, when providing a facility/hall, designated site, terrain for practicing martial arts, when taxing it, the reduced tax rate under Art. 66, para. 2, item 7 of VAT.

• dances

It is a common practice in sports halls to provide a service for conducting group dance classes – sports, Latin, ballroom, folk, oriental, classical and modern ballet. Sport dancing (standard and Latin American) is officially recognized as a sport. Although formally the other dances do not constitute a sport in the narrow sense of the word, insofar as they contribute to the development of the physical activity and motor abilities of the persons who practice them and support the improvement of physical and mental health (which is the purpose of allowing the introduction of the reduced rate ), their organized practice in sports and dance halls, gyms and other suitable premises should be treated as use of sports facilities within the meaning of Art. 66, para. 2, item 7 of VAT. An additional argument in the direction that dance classes in a hall should be treated as the use of a sports facility for the exercise of sports activities is the fact that folk dances are studied in the curricula of physical education and sports. Moreover, to the extent that the provision of a service of use of a sports facility for sports dances is similar to the provision of services for other dances organized and promoting physical activity, they should have identical tax treatment, as is the practice of the European Union Court, according to which the principle of fiscal neutrality does not allow goods or supplies of services which are similar from the point of view of the average consumer, and which are therefore in competition with each other, to be treated differently from the point of view of value added tax (in this sense judgment of 27 February 2014, Pro Med Logistik and Pongratz, C‑454/12 et C‑455/12, EU:C:2014:111, paragraphs 52 and 53).

The given examples are non-exhaustive, but only refer to the physical activities most widely practiced in sports facilities, where the reduced tax rate of 9 percent should be applied.

3.2.6. exercising physical activities in entertainment areas in shopping centers

In large shopping centers, there are dedicated entertainment areas with installed sports facilities, giving the opportunity to exercise physical activities, such as a trampoline and a climbing wall or an ice rink. The provision of their use, if it has a separate price from the use of the entertainment facilities, is a supply taxable under Art. 66, para. 2, item 7 of VAT.

These centers/zones often provide their clients with the opportunity to organize celebrations including the use of the sports facilities, most often also providing entertainers, catering or delivery of food and drinks for the celebration, decorations, etc. In case of such use of the center/facility, the additional services, including if they have a total price with the use of the facility, are taxed separately with their respective tax rate according to their share in the total complex price, since from the customer’s point of view they have independent meaning.

There are also hypotheses where in such entertainment areas, in addition to the use of sports facilities, customers are provided at a common price and the opportunity/access to other entertainment activities, such as children’s slides, drawing corners, entertaining games, etc. In these cases, taxation should be tailored to the circumstance of which of these options represents the main objective for the average user of the entertainment center. This purpose will determine the tax treatment of the general service of providing access to the entertainment center. If the predominant use by the customers is of the sports facilities in it, the supply of the service of providing access to the entertainment center will be at a rate of 9 percent (item 4.1. of the decision of the European Union Court in case C-18/12).

4. Package price delivery/deliveries

Often the service of using the sports facilities is provided to the customers together with the provision of other facilities and amenities for a total price. In doing so, it should be determined whether there is a single complex supply of a service, main and accompanying supplies with common tax treatment, and in these cases – which is the leading element/supply, or whether there are separate supplies with independent tax treatment.

4.1. Practice of the European Union Court

• supplies for the use of equestrian facilities

In this regard, the European Union Court, in a decision in case C-432/15, ruled in item 66 that “although the supply of services related to the use of the facilities necessary for practicing equestrian sports may fall within the scope of point 14 of Annex III to the VAT Directive, this cannot apply to supplies related to the use of facilities intended for the passive stay of the horses in the stable, for their feeding or for the care provided to them, nor to the rest areas or storage.’

Regarding the use of sports facilities for the exercise of sports and physical education, the Court has ruled that “to assess whether a single complex delivery should be defined as closely related to sport within the meaning of Article 132, paragraph 1, letter m) of the VAT Directive, although this supply also includes elements that have no such connection, all the circumstances of the transaction should be taken into account in order to search for its characteristic elements and to determine which of them are the dominant elements (in this sense, in particular judgment of 2 May 1996 in Faaborg-Gelting Linien, C-231/94, paragraphs 12 and 14, judgment in Levob Verzekeringen and OV Bank, C-41/04, paragraph 27 and judgment in Bog and Others, Joined Cases C-497/09, C-499/09, C-501/09 and C-502/09, paragraph 61). It follows from the case law of the Court that the dominant element must be determined by taking as a basis the point of view of the average consumer (in this sense, in particular, the decision in Levob Verzekeringen and OV Bank, C-41/04, point 22 and the decision in Everything Everywhere, C-276/09, point 26) and as, within the framework of the overall assessment, it is taken into account not only the quantitative, but also the qualitative importance of the elements to which the exemption provided for in Article 132, paragraph 1, letter m) of the VAT Directive applies, compared to that of the elements in respect of which this exemption does not apply (in this sense, a decision Bog and Others, Joined Cases C-497/09, C-499/09, C-501/09 and C-502/09, paragraph 62).’

• supplies by using a water park facility

Regarding a complex single delivery in the decision in the case Město Žamberk, C-18/12, item 33, the Court ruled that “As for the question whether in such a complex single delivery the dominant element is the opportunity to practice sports activities falling within the scope of Article 132(1)(m) of the VAT Directive, or where leisure and entertainment alone are dominant rather, this determination should be made based on the point of view of the average consumer, which will have to be established on the basis of a set of objective elements. In this general assessment, particular attention should be paid to the way in which the water park in question is conceived, which is established by its objective characteristics, namely the different infrastructures offered, their equipment, their number and their importance in relation to the park as a whole.

In particular, when it comes to water spaces, national jurisdiction should take particular account whether they are suitable for swimming for sporting purposes, for example whether they are divided into corridors, whether they have suitable starting blocks and depth or, on the contrary, because of the way they are equipped, they are mainly suitable for entertainment.

However, the fact that the intention of some visitors is not related to the dominant element of the supply in question as defined in this way cannot call into question that definition.’

In the light of the interpretative guidance given by the Court in that judgment and in the light of the particular circumstances of each case, it must be assessed whether this is so.

4.2. Hypotheses of tax treatment

4.2.1. One comprehensive delivery

According to the settled practice of the European Union Court: “there is a single transaction in particular when two or more elements or actions provided by the taxable person to the customer are so closely related that they objectively form a single indivisible economic supply, the division of which into parts would be artificial (judgments Levob Verzekeringen and OV Bank, C-41/04, paragraph 22 and Aktiebolaget NN, C-111/05, paragraph 23)”.

For example, as a single service for the use of sports facilities should be considered and treated the provision of the opportunity to customers, in addition to the hall/court/pool for training and its corresponding equipment and facilities, to use the changing rooms, shower cabins, toilet.

• group sports/training

For so-called group sports or group training such as: aerobics, zumba, cango jump, yoga, dance, step aerobics, bachata, spinning and the like, it is necessary to have a sports hall or a dedicated one adapted to the purpose (equipped with the typical sports equipment – for example steps, pilates balls, rubber bands, hoops, rubber ropes, bands, pads for sit-ups, dumbbells and others) sports field/field. For the group practice of these sports, the presence of an instructor leading the activity is necessarily necessary and inherent, as far as the group’s sports activity should be synchronized and graded accordingly. In these cases, there is a single indivisible complex supply of the use of a sports facility, the applicable tax rate for which (including guidance by an instructor as an element thereof) is 9 percent pursuant to Art. 66, para. 2, item 7 of the same law. The basis for assuming that the leading element of this complex supply is the use of the sports facility is the fact that the goal of the average user is not usually rapid individual and significant progress in the relevant physical activity or sport, in which case customers would hire a personal trainer. The goal of group training users is precisely training in a group, which is conditioned by using a sports hall/facility for the collective implementation of sports or physical activity. This is because group training has a specific psychological impact through mutual motivation to stimulate activity, persistence and progress in the training of group participants, combined with the creation of social contacts, which is fully in line with the purpose of the relevant norm of the VAT Directive , allowing a reduced tax rate for the use of sports facilities, adopted in the reasoning of the European Union Court in case C-432/15, item 56. A narrow interpretation of the norm in this case would lead to an unjustified limitation of its field of application and would largely deprive it of a useful meaning, especially given that these sports are one of the most widely practiced as sports for all within the meaning of the Sports Law.

The tax treatment of other types of sports/physical activities (for example: yoga, dances and others) which are conducted/practiced under similar conditions should be similar. The leading element in the delivery from the point of view of the average consumer is the use of the sports facility for collective/group exercise of the respective sport/physical activity. Although in some cases minimal, the equipment of the respective halls is specific and often essential for their use for the practice of the sport concerned. The same could be equipped and supplied, depending on the respective sports, for example with: special flooring, rate, Swedish wall, mirrors and sports equipment, non-exhaustively listed above.

• extreme sports

In addition to the so-called group exercises, the mandatory presence and participation of an instructor is also characteristic of some types of sports/activities containing an element of danger and extremity. For example, rafting, skydiving and the like, which immanently include apart from the use of a facility and the intervention/participation of an instructor/companion, should be treated as a single complex supply of use of a sports facility and taxed at a rate of 9 percent . In this complex delivery, the user’s goal is the exercise of the relevant physical activity (the use of the sports facility), and the mandatory participation of an instructor ensures his safety, i.e. it is a mandatory condition for the delivery, but not the purpose of the user.

• movable items – appliances, utensils, accessories, devices, etc.

As stated above in point 3.1., the devices for practicing the respective sport, which are usually provided for the same and used individually by the practitioners, are not sports facilities. Their provision is initially subject to a tenancy.

However, there are sports where the specific movable items intended for the practice of the respective sports activities, are usually provided to the customers by the operator of the facility, but under his supervision or control. In these cases, the relevant equipment for practicing the respective sport should be treated as an element of the provided complex delivery for the use of the sports facility. Such, for example, are the following hypotheses: karts provided for the use of the karting track facility; rafting boats provided for use on the rafting course; flying devices and parachutes provided for the use of the temporary or permanent facility intended for the practice of the relevant air sport, etc. similar. Unlike the cases of providing sports equipment for rent, in these cases, the possession of the object by the owner of the sports facility is not interrupted, insofar as their use is carried out exclusively and only under his control, supervision, and in some cases also with the participation of his employees/instructors, as indicated above (rafting, skydiving). In this hypothesis, the complex supply as a whole should be treated as a provision of a service for the use of a sports facility and be taxed at the reduced tax rate of 9 percent.

Given the reference by the European Union Court in the judgment in case C-432/15 to paragraphs 56-59 of the Advocate General’s conclusion that the use of the sports facility is/is related to immovable property and should be distinguished from the rental service, no represents the delivery of a service for the use of a sports facility, the provision of a sports device, usually used individually, at the disposal of a person to use it outside the designated sports field/property of the owner of the device. For example, the provision of a go-kart, parachute or raft for use outside the sports facility or not under the supervision/control of the facility operator should be treated as a rental supply of movable property.

4.2.2. Deliveries under the terms of Art. 128 of VAT

Given the provision of Art. 128 of VAT, when a main supply is accompanied by another supply and the payment is determined in general, it is assumed that there is one main supply. According to the permanent practice of the European Union Court, this delivery, which from the point of view of the recipient has no independent meaning and does not in itself represent a goal for the customer, is a supplement or increases the quality of the main subject of the delivery.

Under the conditions of accompanying delivery, the service for the use of a sports facility may also include other services that are normally provided to customers. which services can be, for example: provision of parking, internet, equipment for practicing the relevant sport (tennis balls, badminton shuttlecocks, golf balls, football, basketball, volleyball balls, mats), etc. These services, when provided with a common price (with the service for the use of a sports facility) and insofar as they do not have an independent value, but contribute to the improvement of the quality of the main supply, have an ancillary nature to the main supply – the service for the use of the sports facility and to them the reduced tax rate of 9 percent will also apply.

But even if a supply does not represent a main purpose for the customer, if its share in the total price is substantial, it should have an independent tax treatment – in this case, for the purposes of value added tax, there would be two or more separate deliveries.

The assessment of the circumstances for the presence or absence of accompanying delivery should be carried out independently for each specific case. Such judgment should be made in relation to the provision at a total cost per use of the relevant facility of additional equipment such as tennis rackets, skates, skis, water sports equipment, diving suits, golf equipment and the like. I believe that the assessment of whether the provision of the same is under the conditions of accompanying delivery is significantly influenced by the share of their value in the total price. If the share is significant, it should be assumed that there are two supplies with independent tax treatment.

Where additional services such as parking, internet, provision of equipment such as tennis rackets, skates, diving suits and the like or provision of an instructor are provided at a separate cost by the service provider for the use of the sports facilities, the same are not ancillary supplies and the general tax procedure is applicable to them. That is, the standard rate of tax is applicable.

• coaching service/instructor

In general, to accept that the service of coaching guidance/receiving instructions from an instructor in the use of sports facilities can be accepted as an ancillary supply of the service of the use of sports facilities and its share in the total cost of the service be subject to the same tax treatment – taxed at the reduced tax rate, the following conditions must be present at the same time:

• it is not the main purpose of the customer and its share and importance in the service provided to the customer is insignificant – for example, the customer works out in a gym using the fitness facilities, which is his main purpose. The service provided by a trainer/instructor, who serves the trainees in the entire hall, to explain to a specific new client the specifics of using the relevant equipment and incidentally to direct the client to mistakes he made in the training is a service that contributes to the main – use of the equipment, to was carried out under more favorable conditions. Therefore, the coaching/instructor service in these cases is incidental to the use of the facilities and is taxed at the reduced tax rate within the total price. The service provided to those training in the boxing gym, the main purpose of which is the facility – gym, ring, sports pear, possibly a sparring partner, is similarly taxed, and the incidental intervention with the advice of a trainer, you observe the training in the whole gym, contributes to better quality of the service received, but is not a leading element and does not receive separate tax treatment, but is subject to taxation at the reduced tax rate within the total price.
• the share of the value of the coaching service in the total price of the delivery should be insignificant

The two conditions – that the coaching service is not the main goal of the client and that its share in the total price is insignificant, should be present at the same time, in order to assume that the coaching service is an accompanying service of using the sports facility and for it to be applied the reduced tax rate under Art. 66, para. 2 of VAT.

• services of a fitness or sports center

When granting the right to use the services of a fitness or sports center, it should be taken into account that some of them, in addition to providing their clients with the opportunity to exercise, also provide them with the opportunity to use the sauna, jacuzzi and relaxation area in general package price. In these cases, I find that the main purpose of the visitors is the exercise of sport, that is the main supply, and the other possibilities from the point of view of the average user are ancillary and enable the main supply to take place under the best conditions. In these cases, in relation to the services provided under the terms of Art. 128 of the VAT is an applicable tax rate of 9 percent.

There are also the opposite hypotheses, where a spa center provides the opportunity to use sports facilities, which, however, are negligible in number compared to the area and services provided by the spa center and from the point of view of the average user are not the center of his interest . In these cases, the services provided by the spa center as a whole, including for the use of the fitness equipment in the same (if they are for common use and common price), will be subject to taxation at the standard tax rate of 20 percent under the conditions of art. 128 of VAT, given that the main service in this case is the use of spa facilities for relaxation, and not the use of sports facilities.

4.2.3. Supplies with separate tax treatment

Often, in addition to the use of a sports facility, the client is provided with a coaching or other service/supply of goods, which in itself may represent a client’s goal or, even if it is not his goal, its share in the total complex price is significant. In cases where its share in the total price is substantial, even if this service is not the customer’s goal, it should be treated separately for VAT purposes and the reduced tax rate is not applicable.

In paragraph 77 of the judgment in case C-432/15, the European Union Court held that Article 98 of the VAT Directive in conjunction with point 14 of Annex III to that Directive must be interpreted as meaning that a single complex supply consisting of several items related in particular to the training of horses, the use of sports facilities, the housing of the horses in the stable, feeding and other care provided to the horses cannot be taxed at a reduced rate of VAT, where the use of sports facilities within the meaning of point 14 of Annex III to that directive and the training of the horses constitute two equal elements of that complex supply or where the training is the only main element of said supply, which the referring jurisdiction must assess.

• coaching service
• personal trainer

In cases where an individual trainer is provided for the persons who practice sports or physical education activities, regardless of whether it is at a common price with the delivery of the service for the use of the sports facility, the same is not an accompanying element, but in view of the tax treatment under VAT represents an independent supply and for the supply of the coach provision service, the standard rate of tax is applicable.

• sports “schools”

Some of the sports imply prior training regarding their practice. The provision in these cases of the training service – for example “ski school”, swimming training courses and the like, is not individual to each customer, but is related to individual attention to each of them, and the training is an independent goal of the customers. Therefore, even if it is provided to the customer with a total price, its tax treatment under VAT is that of an independent service, with the corresponding part of the total price being taxable at a rate of 20 percent, separately from the service of using the relevant facility (respectively ski -elevator, swimming pool), taxable at a rate of 9 percent.

The tax treatment is identical when using sports facilities for individual sports when training is organized and takes place in teams/in groups under the guidance of a coach, for example: athletics – gymnastics, running at different distances, high jumps and long jumps, hoops, parallel bars , shot put and discus, etc.; weightlifting – barbells; wrestling, boxing; acrobatics; tennis; skiing disciplines, etc. In these cases, the sport could not be practiced without the use of the corresponding sports facility (athletic stadium, sports field, sports hall, tennis court, ski slope, etc.), and in turn, the coaching service also represents the client’s goal . Therefore, even if it is provided to the customer with a total price, its tax treatment according to VAT is that of an independent service, with the corresponding part of the total price being taxable at a rate of 20 percent,

• facilities that can be used without being accompanied by a coach service

Most sports can be practiced collectively/team/group and without a coach – for example ball sports – football, basketball, volleyball, but also individual sports, for example running, high jump, long jump, swimming. In cases where a coach is provided for such sports and the share of the value of the coaching service in the total price is not insignificant, it should be assumed that there are two separate supplies – use of sports facilities and coaching service, as for the share of the price, corresponding to the supply of the coach provision service, the standard rate of tax is applicable.

The tax treatment for the use of a coaching service by a group of persons for training in individual sports is similar.

5. Card for sports activities

There are commercial practices where a company provides corporate customers with services included in monthly card programs enabling the practice of multiple sports activities by providing access to a wide range of sports facilities and activities, as well as non-sports facilities access services , against the payment of a certain fixed price, independent of the number of visits per month and the types of objects visited. The cards are effectively used by employees of corporate clients and their family members. For the purposes of its activity, the company concludes contracts for the provision of sports, restorative and relaxing services with suppliers managing sports facilities (fitness centers, sports centers, swimming complexes, tennis courts, dance halls or other similar facilities where sports and /or restorative services), expressed in providing access to the relevant sports sites and facilities, as well as with suppliers operating centers providing mainly restorative, relaxing and spa procedures, in which sports facilities are minimal or absent.

The applicable VAT rate for the services that the company receives from its suppliers (fitness centers, spa centers, racket sports, dances and others) is in accordance with the above stated in item 4 of this opinion. For example, fitness centers, including those providing a minimum amount of spa services, charge a tax of 9 percent for their supplies to the company, and independent spa centers, including those providing minimal access to sports facilities, charge a tax of 20 percent.

The company does not impose restrictions on the card users regarding the type and scope of the services provided by it against the paid monthly fee. In this regard, although for the majority of consumers the main purpose is the use of sports facilities, for another part of the consumers the main purpose may be the consumption of spa, restorative, relaxing and other services subject to taxation at the tax rate of 20 per hundred by the subcontractors (see item 4.2.3.). Therefore, it should be assumed that, for its part, the company provides its customers with the supply of both a service for the use of sports facilities, for which a tax rate of 9 percent is applicable, and other services specified above, for which it is applicable tax rate 20 percent. For the purposes of determining the tax bases of the two groups of services provided by the company through the monthly cards, their tax treatment should be consistent with the ratio of the tax bases of the services used by customers (according to invoices from subcontractors), and for each group of services apply the relevant tax rate. This ratio is determined on the basis of the shares of the supplies of the tax bases of the services under Art. 66, para. 2, item 7 of the VAT and the supply of services, taxable at a tax rate of 20 percent, relative to the total amount of the tax base of the services received during the relevant tax period by the company’s subcontractors, provided to its customers under the monthly cards.

6. Entitlement to tax credit

Regarding the right to a tax credit for the goods and services received, which a person managing sports facilities is entitled to deduct in connection with his activity, the following should be taken into account:

6.1. when granting the right to use the managed sports facilities to third parties

When a taxable person uses the sports facilities solely for the paid provision of the right to use them to third parties, he is entitled to a tax credit in full for the accrued tax for the goods and services received, which he uses for this activity.

6.2. when using the managed facilities both for providing them for use by third parties and for the taxable person’s own needs

In case C-432/15 of the European Union Court, item 62, the Court also points out that from the expression “right to use” it follows that the application of a reduced rate is possible if the use is by a third party and not by the taxable person, which operates the relevant sports facility, for its own needs. In this aspect, if a taxable person uses the sports facilities both for the letting of their use to third parties and for his own economic needs, his right to a tax credit for the goods and services received in connection with the purchase, maintenance and operation of facilities, will be determined according to the extent of their use for independent economic activity, which is directly related to the taxable supplies made by him. In this aspect, if the use of the facilities for the activity of a taxable person is not entirely directly related to taxable supplies, the right to a tax credit for their acquisition will be proportional to their use for the independent economic activity (Article 71b of the VAT Act), and the right to a partial tax credit arises for the costs of their maintenance and use (Article 73 of VAT). The assessment of such a direct connection depends on the specifics of the legal relationship in the case. Guidance regarding the presence or absence of such a direct link can be derived from the European Union Court decision cited above.

7. Distinguishing a supply of a service for the use of sports facilities from an exempt supply relating to sport or physical education

This distinction is particularly important, as it determines whether a rate of 9 percent is applicable to the relevant supply or whether it is exempt from taxation, as well as the presence/absence of the right to deduct a tax credit for the received supplies of goods and/or or services that the person will use for the relevant supplies made by him – exempt or taxable at the reduced tax rate.

According to Art. 41, item 4 VAT-exempt supply is the service directly related to sports or physical education, provided by sports organizations under the Social Security Act, which are registered under the Law on Non-Profit Legal Entities (NPO) as organizations designated to carry out public service activities.

According to Art. 10 of the LAW ON PHYSICAL EDUCATION AND SPORTS sports organizations are legal entities that carry out training, competition and organizational-administrative activities in one or more types of sports and develop and promote physical education and sports. Sports organizations are: sports clubs, sports federations and national sports organizations. The establishment, registration, structure, activity and termination of the organizations designated to carry out socially useful activities are regulated in the LAW ON NON-PROFIT LEGAL ENTITIES.

In this sense, when an obligated person is a sports organization within the meaning of Art. 10 of the LAW ON PHYSICAL EDUCATION AND SPORTS and is registered under the LAW ON NON-PROFIT LEGAL ENTITIES as an organization designated to perform a public service activity, and provided that the services it provides can be defined as directly related to sports or physical education, the provision would apply in relation to the same of Art. 41, item 4 of VAT. In order to apply this provision, the services performed by the obliged person must be closely related to sports or physical education, given that the exemption of a supply is determined in particular depending on the nature of the services provided and their relationship with sports activities or physical education. In this sense, the opinions of the Deputy were also expressed. the executive director of the National Revenue Agency in letters with ex. № М-26-И-286/19.02.2015 and № 21-00-14/11.08.2014

In view of the above and insofar as the services for the use of sports facilities are closely related to sports or physical education, when the same are performed by an obligated person who is a sports organization within the meaning of Art. 10 of the LAW ON PHYSICAL EDUCATION AND SPORTS and is registered under the LAW ON NON-PROFIT LEGAL ENTITIES as an organization designated to perform a public service activity, the supply of these services is an exempt supply. With regard to these persons, the right to deduct a tax credit does not arise for the received supplies of goods and/or services, which they will use for the corresponding exempt supplies made by them.

8. Distinguishing the supply of a service for the use of sports facilities from the supply of a rental of immovable property or movable property

8.1. real estate rental

According to consistent judicial practice, the main characteristic of the concept of “leasing of immovable property” within the meaning of Article 13, B, letter b) of the Sixth Directive consists in granting to the litigant, for an agreed term and against remuneration, the right to hold the immovable property as owner and to exclude any other person from exercising such right. In order to determine whether a particular agreement meets this definition, all the characteristics of the transaction and the circumstances in which it was carried out must be taken into account (item 21 of the decision of the European Union Court in case C-55/14).

For example, if the owner of a facility – for example, a stadium or a gym, provides long-term – for example, for 1 year, under the terms of a rental contract, the use of the facility to another person, without undertaking during the term of the rental relationship to maintain the facility, to ensure hygiene and pass-through regime of the same and similar, the legal relationship does not fall within the scope of the reduced tax rate of art. 66, para. 2, item 7 of VAT. The delivery will be taxable at a standard tax rate of 20 percent.

8.2. rental of movable property – sports equipment, utensils, accessories, apparatus, etc.

Given the practice of the European Union Court, that the use of the sports facility is/is related to real estate, the provision in the customer’s possession of a sports device, utensil, accessory, apparatus, etc. movable items intended for the exercise of sports, which equipment is usually provided for the respective type of sport and used individually by the practitioners, does not constitute the supply of a service for the use of a sports facility (for example: the provision for temporary use of a fishing rod, bicycle, ski equipment, tennis and badminton rackets, etc.). A reduced rate in these cases could only be applied if the conditions of accompanying delivery under Art. 128 of VAT (see item 4.2.2.).

The cases in which the provision of equipment for sports purposes should be treated for VAT purposes as a supply of a service for the use of sports facilities are specified in item 3.1. of this opinion.

Corrections of supplies of services for the use of sports facilities, for which a tax rate of 20 percent is applied, for the period from 01.08.2020 until publication in SG, no. 71 of 11.08.2020 of the law amending and supplementing the LAW ON LOCAL TAXES AND FEES

Where a supply is documented by an invoice in which a tax rate of 20 per cent is wrongly applied to the supply of a service for the use of sports facilities, the same should be considered to have been drawn up incorrectly. In this regard, the wrongly drawn up invoice on the basis of Art. 116, para. 1 of the VAT should be canceled and a new one issued with a correctly applied rate of 9 percent. When the wrongly drawn up invoice is reflected in the reporting registers of the supplier or recipient, according to para. 4 of the same provision for cancellation, a protocol is drawn up – for each of the parties, which contains:

1. the reason for the cancellation;
2. the number and date of the document being cancelled;
3. the number and date of the new document issued;
4. signature of the persons who drew up the protocol for each of the parties.

When for supplies for which the supplier (VAT-registered person) has drawn up a report on the sales/supplies of services for the use of sports facilities, which contains summary information about the same for the relevant period, and the tax rate of 20 percent has been wrongly applied , the correction is made by indicating the tax base and the wrongly charged tax with the opposite sign in the sales report for the tax period during which the correction is made. The correct tax rate applies to supplies.

Opinion on the application of the reduced rate of VAT for the supply of a service for the use of sports facilities

Source: NRA