In a salutary reminder of how very tough it can be to obtain exemptions from tax, the Professional Golfers’ Association Limited (PGA) has failed to convince a tax tribunal that its members should be permitted to deduct their annual membership fees from their Income Tax bills.
The PGA was founded in 1901and stands at the heart of a $9 billion global industry. Employing more than 120 people, it had a turnover in 2010 of almost £12 million and its membership of about 7,500 is largely made up of golf professionals. It originated the Ryder Cup event, in which it still has a 20% stake.
In seeking a tax exemption for its members in respect of their £375-a-year annual subscriptions, the PGA argued that its activities were carried out ‘otherwise than for profit’ and were ‘wholly or mainly directed’ towards the objectives listed in Section 344 of the Income Tax (Earnings and Pensions) Act 2003.
The PGA’s arguments were resisted by HM Revenue and Customs on the basis that a significant part of its activities were ‘carried on for profit’ and ‘commercial’ in nature in that they were focused upon the protection, enhancement and exploitation of its well-known brand.
Accepting that the PGA passed the ‘other than for profit’ test, the Tribunal found that it had no power under its constitution to distribute any profit or surplus that it might generate. Its income from what might be viewed as its commercial activities was also utilised for the direct or indirect benefit of its members.
However, in dismissing the appeal, the Tribunal noted the principle that exemptions from tax must be construed restrictively. It found that the PGA’s activities – in particular its organisation of ‘pro’ and ‘pro-am’ tournaments, on which it spent the lion’s share of its income – could not be viewed as wholly or mainly directed at the objectives listed in the Act.
The PGA argued that the tournaments were laid on primarily for the maintenance or improvement of its members’ professional competence. However, the Tribunal noted that there was no requirement that members should take part in the tournaments as part of their continuing professional development.
The main purpose of the tournaments, the Tribunal found, was to assist members in developing their own earning potential through enhancing their reputation as players and taking advantage of the ‘spin-off marketing opportunities’ provided by the events.