As Depeche Mode once said, "It's a competitive world1". No-one should be more aware of that than sportspeople. However, are sportspeople aware of the tax incentives that are offered by governments to attract major sporting events to particular countries? There are obvious commercial and public relations benefits to being the host country for significant events like the Olympics, the Commonwealth Games, Champions League finals etc. For obvious reasons many countries want to fulfill the role. But, believe it or not, the tax rate and tax system of a potential host country can be a deciding factor in whether athletes or footballers actually want their key events to be held there.
Take the UK for example. At 50% our highest rate of personal income tax is reasonably uncompetitive on a global scale. Under UK tax law sportspeople are subject to UK income tax on amounts earned while 'performing' in the UK. This tax charge is reinforced through Double Taxation Agreements reached between the UK and a large number of overseas countries. The decision in a tax case involving Andre Agassi also confirmed that a proportion of worldwide endorsement income, even that paid by a non-UK sponsor, should be subject to UK income tax, whether received by the individual themselves or through a non-UK resident entity (for example a company established outside the UK into which the endorsement income was paid).
So, overseas sportspeople are faced with the prospect of paying to HM Revenue & Customs half of their direct earnings from performing in the UK and half of any sponsorship income deemed to be attributable to performances in the UK. For many this is not an attractive proposition, particularly where they can undertake the same performance and realise the same income but pay a substantially lower amount of personal income tax in a 'competitor' country.
To make the UK an attractive place to 'play sport', certain steps have to be taken by HMRC. Specific tax legislation has been introduced to provide exemptions from UK income tax for participants in key sporting events that have taken or are to take place in the UK.
Finance Act 2010 included specific provisions relating to the 2011 Champions League Final at Wembley. The law specified that employees or contractors of an overseas team participating in the final who were neither resident nor ordinarily resident in the UK would not be liable for UK income tax in relation to any income arising to them which was related to duties or services performed in the UK in connection with the final. No wonder Barcelona played with such freedom! Even then, and in a way that is common to much tax legislation introduced nowadays, there was a clause limiting the scope of the exemption where it was used for tax avoidance purposes. It is hard to see how Barcelona, AC Milan, Real Madrid etc could have manipulated a place in the Champions League Final to achieve UK tax avoidance but there are some clever tax planners out there (maybe Lionel Messi is hiding his light under a bushel) so better safe than sorry! The provisions have been replicated in s.13 Finance (No 4) Bill 2012 in respect of the 2013 Champions League final which is also due to take place at Wembley with the anti-avoidance clause still in situ.
HMRC recently announced exemptions for accredited individuals at the London Olympics. On their website HMRC explained that "(our) role in the London 2012 Olympic and Paralympic Games is to deliver the UK’s commitments on tax and borders policy. This means protecting tax revenue whilst facilitating those legitimately involved in and benefiting from the Games". To achieve this the following exemptions will apply:
- Non UK tax resident individuals who work for a 'Rights Holding Broadcaster' or the Olympic Broadcasting Service (whether as a direct employee, a self-employed contractor or as an employee of an organisation contracted to provide services to those bodies), will be exempt from tax on UK income earned from Games-related activity which is necessary for the broadcast of the Games. This income must be earned during the period 6 April 2011 to 5 April 2013 to qualify for the exemption.
For these purposes a Rights Holding Broadcaster is an organisation to whom the International Olympic Committee or London Organising Committee of the Olympic Games has granted exclusive television, internet or radio rights to broadcast the Games in a particular territory. The Olympic Broadcasting Service is the organisation responsible for producing international television and radio signals and providing broadcasters with the facilities and services necessary for broadcasting the Games.
- Non-UK tax resident businesses in the UK to carry on business as a Rights Holding Broadcaster, the Olympic Broadcasting Service or as a direct contractor to one of those bodies will be exempt from corporation tax that would otherwise arise from a Permanent Establishment (PE) in the UK and from income tax (where no PE exists). regardless of whether any relief is available via a Double Taxation Agreement. The exemption will apply for income generated in the period from 30 March 2012 to 8 November 2012.
- Non-UK tax resident individuals who are in the UK temporarily to perform an official function at the London 2012 Games and who hold an Olympic Identity & Accreditation Card or a Paralympic Identity & Accreditation Card will qualify for an exemption. Categories of official functions are:
- A competitor;
- A media worker (including journalists, technicians and producers);
- A representative of an official Games body;
- A service technician;
- A team official of a National Olympic or Paralympic Committee;
- A technical official (including judges, referees and classifiers).
The exemption from tax is restricted to income earned from carrying out the official function for which the individual received their accreditation. The activity must be carried out in the UK during the period 30 March 2012 to 8 November 2012 to qualify for the exemption.
- Non-UK tax resident individuals working for a London 2012 Partner are exempt from tax on UK income earned from carrying out services in the UK for a London 2012 Partner specifically for the purpose of delivering the Games. This means the activity the London 2012 partner undertakes in return for the right to market and advertise themselves or their products for commercial purposes by reference to their association with the Games. The income must be earned during the period 30 March 2012 to 8 November 2012 to qualify for the exemption.
- There is also an exemption from income tax for non-UK tax resident individuals who are temporarily in the UK to rehearse and/or perform in the opening and closing ceremonies. From the information published by HMRC on their website there does not seem to be any time limitation to when the income is earned; the 30 March to 8 November 2012 period is not specifically referred to in this context.
As can be seen, HMRC has tried to ensure that the position is as attractive as possible for sportspeople and other people linked to the Olympics.
In addition, the recent Budget announcement stated that the Government will provide an exemption from UK taxation for money earned by non-resident athletes in relation to a performance at the Commonwealth Games event in Glasgow in 2014. No detail was provided but specific legislation will be included in Finance Bill 2013. One can only assume that the reference to an exemption for athletes will eventually be extended to include a similar class of accredited individuals and broadcasters to mirror the position that has been created for London 2012. Time will tell.
What of other sporting events that take place in the UK and to which the world is invited, whether as participants or as broadcasters? What about Wimbledon, the British Open, the British Grand Prix and other keynote sporting events in the British sporting calendar? Readers will not be surprised to hear that the largesse of HMRC and the Treasury does not extend to these events. Participants and broadcasters remain subject to the usual UK tax rules exposing, in the case of participants, their tournament winnings and a proportion of their sponsorship income to UK income tax and, in the case of broadcasters, potentially exposing their trading profits earned in the UK and the salaries of their staff to UK tax.
So, why the difference? Well, for Wimbledon, the Open, the British Grand Prix et al. UK PLC is not in competition to attract the participants. These are all well established, high profile events that overseas sportspeople clamour to participate in. There is no reason for any tax benefits to be provided to incentivise attendance because people will play in these events regardless of their tax position. Events like the Olympics, the Commonwealth Games and the Champions League final are transient, within reason can take place anywhere and are not wedded to the UK in the same way that, say, Wimbledon is. So to bring these events here, the UK has to be promoted as at least as attractive a place to perform as anywhere else. In this regard tax can and does make a difference.
We haven't held a World Cup in the UK since 1966. We got two votes on the ballot to host the 2018 World Cup, one of which came from our own FIFA representative. Presumably we were not offering sufficient tax breaks? Maybe there is a lesson there for Mr Osbourne. England 2030 is a possibility but only with the right, competitive2 tax regime in place!
1 For all 1980's vintage music freaks, in which song?
2 For the non 80's music aficionados it was "Everything Counts".