Madge Case Alters VAT Laws

Although the Copenhagen tax court has ruled that the local music club in Horsens doesn’t have to pay US$1.74 million VAT on its August 2006 Madonna show in the Danish city’s Ny Theatre, it’s likely to be the last time any such organization will get away with claiming tax-free status when promoting rock gigs.

At the time of the show, tax minister Kristian Jensen had already announced he was going to unify the law by allowing future VAT exemptions only if any profit the clubs make goes to charity, but Horsens claimed it should be allowed exemption on the Madonna show because the application for it was already in the tax authority’s possession.

Frank Panduro, who was Ny Theatre chief at the time, was furious and said making the local organisation pay the tax on the Madonna show was "backdating the law."

"They had already done their budget for the show and the VAT exemption application had been received by the tax office, but then it all changed and the tax authority said they had to pay the VAT," Flemming Schmidt of Live Nation’s DKB Concertpromotion, which produced the show for Horsens, told Pollstar.

"It was too late to re-do the budget because the offer for the act had already gone in and been accepted. It would have cost the club a fortune and I doubt it could have paid," he said.

In December the Danish national tax tribunal ruled in Horsens’ favour, but also set down a new interpretation of the law that said in the future, sports and music social clubs must build VAT into their budgets and "aim to cover" their tax liabilities.

It has closed a loophole in the law that had become a burning issue in the Danish live music business and the focus of a lot of media attention.

In January 2006 Parken Stadium boss Flemming Østergaard and festival organiser Knud Bjerre had both complained that Horsens’ VAT-free status had enabled it to top their respective bids for a July Rolling Stones show.

At the time, Østergaard told national daily Politiken that it was unfair that Copenhagen Parken, the national stadium, had lost out on the Stones because Horsens’ charity status meant it had an extra 11.2 million Danish kroner (then US$1.79 million) in the pot and could make a higher bid.

Bjerre, who had put in a direct bid for the act to play in Herning, said the law shouldn’t extend to a local music club being able to put on the acts that Horsens puts on at the Ny Theatre and at the local football stadium.

The Horsens music club (Musikforeningen Eigils) had been the contractual promoter for a list of international acts including REM, David Bowie, Elton John, Bob Dylan, Robbie Williams and Paul McCartney.

The big glitch in the Danish tax law governing the charity status of local sport and cultural clubs is that it was being interpreted in different ways by the numerous tax districts spread across mainland Jutland, Zealand, Funen and the country’s 75 smaller inhabited islands.

Some regions only allowed an exemption if any profit is passed straight on to charity, while other areas allowed for profits to go toward the funding of the next "charitable" gig. Horsens was in such an area.

The changes in the interpretation of the law governing which non-profit organisations can claim tax-free status means that the music clubs will no longer be able to use that privilege to outbid private, tax-paying promoters.

The fact that the clubs must budget for VAT, and immediately give any profits to a genuinely charitable institution such as homes for the elderly and disadvantaged, means they can no longer roll over tax-free profits to fund their next event.

Kaj Atzen, the public accountant for the Horsens club, says he’s delighted with the court victory because having to pay the VAT for Madonna would have been unfair. But he admitted to being at a loss as to how the new legal interpretation would affect the country’s outdoor market.

He did say it will certainly prevent promoters from claiming to be consultants and then setting up a festival and taking the profit, having made a donation to the local club involved in order to take advantage of its tax-free status.

"That would certainly be against the new interpretation of the law, as a private consultant can’t be responsible for the promoting and finances of the event, then just give money to the club to make it look as if it’s the owner of it," he added.

Bjerre, who now produces fewer provincial festivals for sport and social clubs since ceasing work with Aalborg in 2004, Aarhus in 2006, and selling the rights for Horsens Festival to Panduro in 2007, says the law won’t affect his business because he’s paid a fixed fee to consult with his two remaining festivals in Herning and Skive.

He says he’s spent more time concentrating on his work with the Skive local council since being reelected in 2005 and prefers promoting international acts to producing festivals. Bryan Adams and Jean Michel Jarre are already in the pipeline for 2008.