October 20, 2024 (pm) The criticism, particularly from Hesse and North Rhine-Westphalia, of the federal government’s planned expansion of the current sales tax exemption in sports was successful. The federal government is removing its proposal from the 2024 Annual Tax Act. The change would have had the opposite effect of what was intended. It would have brought with it considerable financial risks, especially for municipalities as operators of sports facilities – and therefore also for people and clubs as users of the sports facilities.
According to the proposed new regulation, a municipality would no longer have to charge sales tax on entrance fees or hall rent. But at the same time, she can no longer have the sales tax paid on investments, the so-called input tax, reimbursed by the tax office. The new regulation could therefore lead to significant financing gaps, especially for very expensive projects such as the construction, repair or renovation of gymnasiums or swimming pools. Finance Ministers Lorz and Optendrenk welcomed the deletion from the annual tax law passed today in the Bundestag.
Finance Minister Professor Dr. R. Alexander Lorz (Hesse) and Dr. Marcus Optendrenk (NRW): “We are pleased that the state initiative was ultimately successful and that the federal government was prevented from taking quick action. Even if speed counts in sport: When expanding the sales tax exemption, it pays to be thorough and not quick!”
Finance Minister Professor Dr. R. Alexander Lorz:
“Hesse warned early on about the federal government’s intention to expand the sales tax exemption in sports. There was a real risk that the important investments made by municipalities in their swimming pools and sports halls would come to a standstill or not be carried out at all. I am grateful that the Bundestag has now complied with our request and stopped the planned change. If the regulation had come about as originally intended, it would have done a disservice to sport in our country.”
“Hesse will continue to work towards achieving such a tax exemption in the future if the sales tax exemption in sports is adjusted
to keep in mind: the promotion of sport. Serious financial disadvantages and legal uncertainties, especially for municipalities and clubs as important operators of sports facilities, must be avoided. Municipalities and associations should therefore be included in any reform plans at an early stage.”
Minister of Finance Dr. Marcus Optendrenk
“With its quick fix on sales tax exemption, the federal government has provided a prime example of the principle: well thought, poorly done. The promotion of popular sport is an important goal given its contribution to health and social cohesion in our society. But a political project must not only have a good headline but also well-crafted content. A tax break, which can lead to horrendous back taxes, is a boomerang for publicly funded popular sports. North Rhine-Westphalia successfully advocated for this change to be deleted in the Federal Council. We promise the federal government our full support for every serious measure to promote sport and voluntary work – but it must then be thought through to the end and come without any risky rat tails.
What was the federal government’s planned new regulation of sales tax exemption in the sports sector about?
The draft of the 2024 annual tax law was about how far the sales tax exemption in the area of sports should extend in the future. The planned tax exemption would have particularly affected cases relating to swimming pools, gyms and other sports facilities, which are primarily maintained by the public sector. The government draft for paragraph 4 number 22 letter c of the sales tax law, which would have replaced the current regulation, stated that the tax exemption applies to everyone “Other services closely related to sport or physical training provided by non-profit institutions to people who practice sport or physical training” be expanded. With this new regulation in national law, the scope of the VAT system directive, which is binding for the EU member states, should be exploited in the sense of the greatest possible tax exemption and the requirements of the case law of the European Court of Justice and the Federal Finance Court should be implemented.
Why was the proposed new regulation problematic?
The planned sales tax exemption would have been problematic in practice, especially for legal entities under public law, such as municipalities or special purpose associations, but also for many associations.
On the one hand, it was associated with considerable legal uncertainty, particularly with regard to the term “non-profit-making institutions”.
On the other hand, the possibility of deducting input tax is of immense importance for municipalities, special purpose associations and numerous clubs with their sports facilities because the investment and maintenance costs of the facilities are generally high in practice. Due to a sales tax exemption, the possibility of deducting input tax would have been eliminated for system-related reasons. In addition to future investments, this would also have affected long-term investments in sports facilities that have already been made, because the extension of the tax exemption could have led to a subsequent correction of the input tax deduction and to significant additional payments within the correction period of up to ten years.
What was the role of the federal states?
The new regulation provided for in the government draft of the 2024 annual tax law was discussed in the Finance Committee of the Federal Council. Due to the states’ considerable concerns, the plenary session of the Bundesrat ultimately asked the federal government to re-examine the proposed regulation. The federal government then spoke out in favor of abolishing the regulation. The Bundestag ultimately stopped the reform of the sales tax exemption in sport in the parliamentary process.
