Expert Column

Dr. Gregor Reiter, Partner, GRÜTER Attorneys and Notaries, Germany on \"Tax Turmoil in German Football\"
Tax Turmoil in German Football

On August 28th, 2013 (Az.: IX R 4/11, BStBl. II 2014, S. 282) the German Federal Tax Court ("Bundesfinanzhof" / "BFH") passed down a judgement which may prove more dramatic to German Football than the famous “Bosman-Ruling” of the European Court of Justice (EuGH RS C-415/93, Slg 1995, I-4921). The ruling of the BFH is questioning the current practice in German Football that the agent involved in a player transfer in paid for by the new club.

Ever since agents appeared in the football market, which in Germany has been the case since the late 1970´s, it has been common practice all over Europe that the new club is going to pay the agent regardless of the fact, whom the agent works for. This practice was challenged in Germany in 2001 by the fiscal authorities in the German City of Mönchengladbach, home to Borussia Mönchengladbach, a club which came to fame in the 1970´s as the big rival of Bayern Munich, winning the German Championship five times and the then called UEFA-Cup three times. The fiscal authorities denied Borussia Mönchengladbach the VAT deduction of invoices sent to the club by agents having been involved in player transfers. Furthermore the fiscal authorities denied accepting these invoices as business expenses. Their reasoning was simple: Not the club, but the player was the client of the agent. Since the player is not an entrepreneur but an employee, he is not able to deduct VAT from invoices addressed to him and expenses paid on his behalf by his employer – in the case at hand Borussia Mönchengladbach – cannot be business expenses for the club. Naturally Borussia Mönchengladbach challenged that view in court and seemed to be on the winning side when the Tax Court Düsseldorf (“Finanzgericht” / “FG”) ruled on October 29th, 2010 (Az.: 1 K 4206/08 U) that the practice described above was in unison with German tax laws. The main argument of the FG Düsseldorf was that it did not matter who the agent really worked for – player or club – since according to the regulations in the German Civil Code relating to the business of agents, an agent is allowed to work for both parties as long as both parties are aware of the fact that the agent has a dual mandate. That verdict, challenged by the fiscal authorities of Mönchengladbach, was ultimately overruled by the BFH and send back to the FG Düsseldorf. The BFH asked the FG Düsseldor to clear up the facts of the case with a special focus on the question who mandates the agent, the player or the club.

In its verdict the BFH pointed out, that the VAT deduction of an invoice a club receives from an agent is only then possible when the club and not the player is beneficiary of the agent services. In order to be able to assess that, special circumstances need to be established. According to the BFH, neither the presence of an agent in a transfer nor the fact that he may have entered into a contract with the new club of the player is sufficient proof for a mandate between the club and the agent. It is therefore the task of the FG Düsseldorf now to determine, if in the cases to be decided, the club or the player has been the beneficiary of the agent services. The problem of course is that in a lot of cases that particular question cannot be answered, which may prove fatal for the current practice since the BFH stressed one issue in its verdict, which may have been overlooked by the FG Düsseldorf in its previous ruling: Article 19 Section 8 of the FIFA Regulations for Player Agents. The BFH advised the FG Düsseldorf that according to Article 19 Section 8 of the FIFA Regulations for Player Agents the agent is prohibited from accepting a dual mandate, meaning he cannot represent the club and the player at the same time. Although such a dual mandate is permitted by the German Civil Code, the BFH viewed the FIFA regulations to supersede the German Civil Code in this particular question.

Yet another problem arising out of that verdict is the fact that the BFH views the common practice of paying the agent fees in instalments tied to the player´s employment contract with the club as condition subsequent rather than as condition precedent. The consequence of that view is that the entire agent fee becomes taxable in the fiscal year in which the agent has acquired the claim against the club, i.e. signed the contract with the club relating to his fee. Result of that is of course that the agent has to pay taxes on amounts he has not received yet and which he may never receive if the player´s contract ends prematurely. That change of heart by the BFH may present a lot of German football agents with severe liquidity problems. The fiscal authorities have already begun to examine the big German player agents in the light of the BFH verdict.

Finally one question remains to be asked, but most likely it soon will be asked by the fiscal authorities: If the player, being an employee of his club, really is the beneficiary of the agent´s services and the agent fee is paid for by the club, is that payment not a benefit in kind to the player? As such it should be income taxable for the player. The answer to that question is feared by agents, players and clubs a like and might rack havoc in German football. 


About the Author 

Dr. Gregor Reiter wrote the first legal dissertation dealing with the transfer of football players in the post Bosman area. He has worked in sports law ever since representing mostly agents, but also players and clubs. He is the managing director of the German Football Players Agents Association (DFVV) and on the management board of the European Football Agents Association (EFAA). He is a partner at the renowned law firm GRÜTER in Duisburg, Germany (, were he is the head of the sports law and insolvency desk.