On 21 February 2019 the Tax Department released Circular 231, entitled "Right to entry and use of sports facilities" referring to and clarifying the following: (a) The terms 'right of entry' and 'sports facilities'. (b) In which cases is the reduced rate applied? (c) Which transactions fall under the standard VAT rate? (d) Obligation to register by state and local authorities.
The reduced rate of 5% in relation to the right to enter sporting events and the use of sports facilities is provided in paragraph 7 of Table B of Schedule Five.
A. Concepts arising from this provision
Sports events: All kinds of sports events taking place in the Republic such as football matches, basketball, volleyball, athletics and boxing matches.
KPMG Comment: Although not specifically mentioned in the circular, sporting events can include swimming, tennis, squash, badminton, fencing, and similar events where entry fees are charged.
Sports facilities: In general, all venues where sporting events take place and for which a license is required *. Such venues include, stadiums, swimming pools, gymnasiums and general areas and building facilities designed or adapted for sporting events.
* We understand that if the venue is not licensed, then the reduced rate is not applicable.
B. In what cases does the the reduced rate apply?
Only in cases where sports facilities are made available exclusively for sports purposes and not for other activities such as wedding and christening receptions, etc.
The method of payment of the right to use the facilities by physical persons or organized groups is irrelevant. Whether this consideration is paid per usage or a specific number of uses or for a certain period of time, the substance of the transaction does not change.
The reduced rate also applies to organized groups such as sports clubs that do not have their own sports venues for their members’ training or competing, and pay rights to owners of sports facilities to be able to use these facilities either occasionally or at regular intervals.
KPMG Comment: In the above category sporting teams choosing Cyprus for their training can also be included. If these teams pay directly the fees to the owner, there is no doubt that the fee is subject to the reduced VAT rate. However, the wording of the circular does not clarify whether the reduced rate applies in cases where the teams delegate to third parties, including tour operators, to transact with the owners of the sport facility and then include the usage fee together with other services such as accommodation and transport.
A relevant question was submitted to the Tax Department and the Commissioner of Taxation is expected to take position.
C. What comes under the standard rate?
Normally, standard VAT services include organic or inorganic, active or passive gymnastics with or without equipment, as well as learning a sport such as horseback riding, swimming and tennis.
KPMG Comment: The circular at this point is unclear as to what exactly 'gymnastic services' mean. We are of the opinion that is referring to group or individual training of people under the guidance of a trainer rather than the training of a person or persons on their own by using fitness equipment at the gym.
D. Long-term availability of sports facilities
The long-term availability of sports facilities does not fall under the reduced rate, alike 'the right to use sports facilities'. Where the facilities are available on a long-term basis, the transaction is that of the letting of immovable property as provided for in paragraph 1 (a) (vi) of Schedule Eight (in force from 13/11/17). The difference between the two lies in the fact that the lessee has the exclusive right to manage the immovable property which, according to the lease agreement, the intention of the parties is the long-term rather than the short-term or occasional use of the facilities.
An example of a long-term lease of sports facilities is the case where a stadium/sports facility owner makes it available to a football club to use it on a permanent and continuous basis.
A Company being the owner of a stadium in Larnaca gives an exclussive right to a football club for the training of its football team as well as to conduct the football matches of the cypriot championship.
However, if the owner company gives the stadium to other clubs, the concession is not exclusive and is therefore not considered as a lease under paragraph 1 (a) (vi) of Schedule Eight.
It is also considered a lease of immovable property subject to the standard rate if, for example, an educational institution grants a right to sports facilities (for example, football, tennis grounds) to a person exercising an economic activity such as a football or tennis school.
E. State and local government authorities
Under Article 31 of the VAT Law, activities carried out by state authorities, local authorities and other bodies governed by public law in the exercise of state authority do not constitute taxable transactions. Subparagraph 31 (2) entitles the Commissioner of Taxation to consider any authority as a taxable person if its transactions distort competition. Therefore, the activities described above, whether they are subject to the standard (dancing schools) or the reduced rate (provision of sports facilities), create an obligation to register and account for VAT by the state or local authority, as they compete with private businesses.
How can KPMG assist?
Should you like to further discuss the content and potential impact of the Circular to your business, please contact one of our trusted advisors from the Indirect Tax Department at KPMG Cyprus.
KPMG’s Indirect Tax team provides advice and assistance at the Cyprus and international level. We structure our effort to dovetail with your business issues and strategy. Our focus is on supplying value adding and pragmatic advice rather than just a list of recommendations.
Our tax professionals are able to review your company’s current tax position and provide relevant advice and planning on a range of indirect taxes, including VAT, customs duties and excise taxes (such as tax audits, reorganizations and acquisitions, etc.). Furthermore, we can help your company with its administrative obligations and contacts with administrative bodies.
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