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 Another Thing

A taxing matter for the game
Given all that has been going on in the world over the past year or so, sports stars are not going to get any financial sympathy. But, for what it’s worth, there is this…

Tax is seldom the most popular of subjects, even if talking about it is preferable to paying it. Sportswise, it has lately become something of a hot-button topic, even if why now is something of a mystery. Earlier this year, a Sunday Times story spoke of a “new offensive by Her Majesty’s Revenue & Customs (HMRC) to impose levies on money from endorsements” on non-UK resident sportspeople. Essentially, this means that if a professional golfer plays five tournaments a year in theUK out of 15 in total, then – subject to any special circumstances he or she is able to adduce – not only the prizemoney but also a third of their income from, say, an equipment contract will be subject to tax in the UK.

This is a matter obviously not confined to golf. Michel Platini, president of UEFA, has said that tax issues were the reason Madrid rather than Wembley will host this year’s Champions League final. I should imagine Seb Coe is on the case re the 2012 Olympics in London. Ian Ritchie, chief executive of the All England Club, which runsWimbledon, told the Sunday Times: “We urgeHMRCto stop this before it is too late. It could inflict huge damage on Britain’s ability both to continue to stage world-class sports events and attract new ones in the future.”

Top players from abroad will always come to the UK to compete at Wimbledon and the Open – the high points of their respective sports and where the companies who pay out those endorsement fees expect themto be. The same does not hold for other tournaments. If you’re Sergio Garcia, who has unwillingly become golf’s poster boy for this subject, you can comfortably play 11 tournaments on the European Tour without any of them being in Britain. As of this spring, Clarke Jones of IMG, who looks after Garcia’s business affairs, would not confirm his client’s plans for playing in the UK in 2010. “This is a topic I’d rather not comment on,” he said. In the past three years, the Open apart, Garcia’s only appearances in the UK have been at the European Open, which no longer exists.

What’s odd is the case that appears to have kicked the hornets’ nest was a House of Lords judgment in Agassi v HM Inspector of Taxes, in which the famous tennis player had challenged HMRC’s application of the law, ultimately unsuccessfully after he had prevailed in the lower courts. That was in 2006. So why the fuss now? A spokeswoman for HMRC told me: “We have no idea why this has suddenly become a big issue. The Agassi Rule changed nothing.

It merely confirmed what the law was.” Judy Higgins, a senior tax manager at ‘Big 4’ accountants Ernst & Young, agrees. “It was perhaps disappointing that the case didn’t address such issues as territorial apportionment, as the end result changed nothing. Non-resident sportspeople have always been subject to UK taxation on their earnings.” She adds: “Thismay be happening because of the overall economic situation in the country – the Revenue is perhaps more zealous in pursuing cases today.”

Which rings a bell – like the Pompey chimes. Referring to the interminable legal proceedings concerning Portsmouth Football Club, Ian King, deputy business editor of The Times, recently explained that the tougher line latterly taken by HMRC had arisen “because of the need to raise more revenue for the Treasury in the wake of the appalling state of the public finances”. HMRC is formally having none of this – “No, we are not implementing this more rigorously.Nothing has changed inwhatwe are doing” – but it wouldn’t be surprising if they had decided to push harder now, given that until the House of Lords ruling, the Agassi position was in the ascendency.

Jonathan Orr, financial director of the European Tour, says: “My understanding is that the way that the HMRC calculate any endorsement tax due has changed recently in respect of deductions for image rights and also the number of counting days used in the tax calculation, generally resulting in sportsmen and women being asked to pay more tax.”

It’s not as if we are the only country that does this. “The UK, along with most other major countries, taxes sportspeople and other entertainers on income related to the performances that are undertaken in their country,” saysHMRC. “Taxing non-resident sportspeople who perform in the UK on sponsorship and endorsement income in this way is a long-standing practice.”

Maybe so, but the European Tour is concerned. “We are considering all options we can pursue to oppose this tax,” says Orr. “Along with other sports bodies, we are making strong representations to government and HMRC.”

Julian Headley of RSMTenon, who represented Agassi, says: “We are looking at preparing a document to showthat tax-wise – let alone the potential harmit does to events in the UK – thismakes no financial sense. If events such as Queens’ in tennis and the Volvo PGA Championship in golf start failing to attract overseas stars, then they will make less money and consequently pay less by way of corporation tax, so HMRC would be worse off.”

He adds: “Depending on the rate of tax in the sportsperson’s country of residence, the new 50%higher rate of taxmaymean that many will not be able to obtain a full tax credit for the UK tax they have paid, which can only make matters worse.”

So we’ll have to see what happens. Meanwhile, one facet of this did cause a grin – or should that be a grimace? Some of themail sent to these overseas sports stars goes via Sweden. What, not via the RoyalMail? “There is no particular reason for the post going via certain routes,” saysHMRC, “other than what our postal provider finds to be more efficient.HMRC's internationalmail is handled by Spring Global, a joint venture between TNT, Royal Mail and Singapore Post.”

So at least we get a third of that, too.

May 2010

Reproduced with kind permission of Golf International Magazine


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