VAT and uncertain, contingent consideration

Where a person enters into an event with the hope of winning a prize, such as a horse race, there is no supply for consideration on the basis of ECJ jurisprudence. This jurisprudence includes the case Baštová (C-432/15), where the court held that a prize for placing in a horse race was not consideration for the entering of the horse in that race. The prize money in those circumstances is paid not for the entry of the horse, but for the achievement of a certain result, namely the placing of the horse during competition, which is highly uncertain.

In A v Finanzamt X (Case C-713/21) (note that the decision is not yet available in English), the taxpayer entered into arrangements for the stabling, training and racing of horses. In addition to charging the owners an amount to reimburse the costs of maintenance, participation in competitions, shoeing and veterinary care, the taxpayer also received half of any winnings from prizes obtained by horses at those competitions.

The taxpayer argued that the prize winnings were not consideration received by him for services provided on the basis of the Court’s earlier case law. In particular, the taxpayer argued that there could be no direct link between the uncertain winnings and the provision of services such that any winnings did not constitute consideration for the supplies in this case.

The Court rejected that analysis. In this case, the owners essentially agreed to assign 50% of any prize money to the taxpayer in return for his services. Unlike the Bastova case, there was no uncertainty in the transfer of the right to 50% of the prize money so as to break the direct link between the consideration and the supply of services. The transfer of the right took place on conclusion of the contracts and had an economic value in itself. Although the actual amount transferred from each race was uncertain and varied, the assignment was not linked to any result. “The consideration for all the services provided by the applicant in the main proceedings constituted that transfer, irrespective of whether or not it gave rise, in a given competition, to winnings from a prize”.

Comment

The decision of the Court distinguishes between prize money as consideration per se and the agreement to assign prize money as consideration. In the latter case, it appears that it is the assignment itself which amounts to consideration for VAT purposes.

The decision does not go on to consider the implications of this, however. In particular, it would in principle appear necessary to treat the supply as a form of barter requiring a valuation of the assignment of the right to receive 50% of any prize money upfront – rather than simply treating any monies received pursuant to the arrangement as the consideration. In practice, however, due to the difficulties of valuing such contingent rights, most taxpayers (and tax authorities) might treat what is essentially a contingent fee arrangement as crystallising when the monies are paid rather than treating it as a supply of a right – even if there is no clear legal basis for doing so.