A ruling made by the Upper Tribunal of the European Court of Justice on Friday could lead to a VAT refund bonanza for hundreds of Irish golf clubs worth millions of euro. It could also mean some pain for others.

The Court was asked to rule on whether “green fees”, charged to non-members of golf clubs to use the club’s facilities, should be exempt from VAT. 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. 

Clubs could reclaim several years of VAT that could cost the Exchequer tens of millions.

“It will be interesting to see how government reacts,” one industry source said. “It will only benefit members clubs, some clubs might not even apply for it as it may raise other issues with the revenue.”

One large club with considerable green fee income expected to claim back €330,000 and save €50,000 in VAT charges a year for the foreseeable future.

Traditional venues that attract the largest numbers of foreign golfer could recoup sums in the seven-figure range. And all thanks to Bridport and West Dorset Golf Club and the encouragement of KMPG in the case.

According to out-law.com:

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).

But they lost.

Alan Duinsmuir in at GolfClubManagement.net reports:

[The Court] found that all supplies of the facility to play golf provided by non-profit making clubs must be exempt from VAT and that there can be no exclusion from exemption by reference to green fees being income not arising directly from memberships.

It was also held that it is not possible to apply a general exclusion which narrows the scope of the exemption as provided on the face of the legislation.

“The issue in dispute was whether or not green fees charged to visitors should be treated as exempt from VAT,” said Paul Stewart, director of KPMG.

“HMRC argued that green fees should be taxed whereas on behalf of the golf club we argued that they should be treated in the same way as annual subscriptions.

“I am delighted to say that the lead case taken by KPMG was successful – European VAT legislation had not been correctly implemented in the UK.

“In light of the positive result, we expect that HMRC will shortly start to process claims. Due to the significant volume of claims made, we have contacted HMRC with a view to agreeing a centralised approach for claims processing, to ensure that the matter is dealt with efficiently and that all taxpayers are treated similarly.”

The bad news is that some proprietary clubs could go to the wall in the face of more competition from ordinary clubs.

One proprietary manager told GolfClubManagement.net:

“The result of this ruling means that members, who were already VAT exempt, and now visitors to private members’ golf clubs, will not have to pay an extra 20 percent tax on the cost of playing golf, but members and visitors to proprietary clubs will still have to pay that levy.

“Great news for private members’ clubs who can claim back thousands from the taxpayer. Dreadful news for proprietary clubs that already pay more tax anyway – many will now go under as they will not be able to compete.”

Managers at ordinary Irish clubs are rubbing their hands with glee. As one said: 

“For the industry this will be biggest golf story in 2014. Light at the end of the tunnel for a lot of clubs…. a nice rebate and the knowledge that the VAT on green fee revenue was gone will be welcome news.”