Usain Bolt has said that he would like to appear at athletics meetings more often in the UK but is unable due to the tax cost. He was able to compete in the Olympics due to tax exemptions introduced to meet one of the conditions for the award of the 2012 Olympic and Paralympic Games to London.
The UK faces a stark choice here: should the UK grant tax concessions to non-resident sportspeople to attract them to the UK, giving tax benefits to a small group of often wealthy but mobile individuals? Or should the UK give up on holding world-class sporting events, other than the small number of events that are sufficiently important to draw the leading sporting talent to the UK despite the tax implications?
The package of Olympic and Paralympic tax exemptions applies to competitors and others involved with the Games. As a result, some campaigners have dubbed the Olympic site in Stratford a "temporary tax haven", claiming that companies operating at the Olympics and Paralympics will be able to avoid - quite legally - millions of pounds of tax that would otherwise be due.
Generally, non-resident individuals playing professional sport or performing as entertainers in the UK are liable to UK income tax on their UK earnings but not their overseas earnings. Organisers of events in the UK are required to withhold income tax at the basic rate on before any fees or prizes are paid. The UK's double tax treaties generally permit the UK to tax the income of non-resident sportspeople and entertainers from their work in the UK, but any tax paid in the UK is usually creditable against tax due overseas.
However, the real issue is not tax on earnings arising directly from appearances in the UK, but that the UK also levies tax on a proportion of the sponsorship and endorsement income of elite sportspeople and entertainers, on the basis that part of that this additional income relates to their participation in events in the UK. In a tax case involving Andre Agassi, the House of Lords ruled in 2006 that the UK can charge income tax on a proportion of an athlete's worldwide sponsorship income, typically based on the number of days spent competing in the UK compared to the number of days spent competing elsewhere. This tax charge raises around £60m each year, but the result can be that the tax cost of appearing at an event in the UK is greater than the fees paid. Unsurprisingly, many choose to stay away.
Some sportspeople have already declined invitations to events in the UK as a result of these tax rules. For example, Rafael Nadal did not appear at the Queen's tournament in 2012 partly due to the amount of tax it would cost him, and there has been a threat to move the ATP World Tour Finals away from London after 2013. Sergio Garcia declined to compete at the BMW PGA Championship in 2010 due to tax concerns. Apart from the Olympics, Usain Bolt has not competed in the UK since 2009.
Although competitors at the Olympics and Paralympics are not paid by the organisers for their attendance or performance, many other individuals involved with Games will be paid for the work they do in the UK, including security, medical, catering, coaching and broadcasting staff. In addition, elite non-resident athletes will be keen to make sure that their considerable endorsement and sponsorship income is not taxed in the UK if they compete here. Companies operating at the Olympics might be concerned that their presence in the UK could create a permanent establishment, bringing some of their profits into the scope of UK corporation tax.
The Olympic and Paralympic tax exemptions are listed on the HMRC website and include income tax exemptions for non-resident individuals in respect of income received for:
- carrying out "official functions" at the Games, including competitors, judges, team officials and journalists with official accreditation;
- working for an official broadcaster of the Games, such technicians working outside the Olympic site who would not need official accreditation;
- working as an accredited person for authorised "official partners" of LOCOG, such as Coca-Cola, McDonald's, Samsung or Visa; or
- performing at the opening or closing ceremony.
There is also a corporation tax exemption for non-resident companies employing individuals in these categories, to stop the non-resident company becoming subject to UK tax due to the activities carried out by the individuals in the UK, and simplified procedures to avoid customs duty and VAT on the temporary import of goods related to the Games.
This kind of tax exemption is not new, but they are more common than they used to be. A more limited tax exemption was introduced for the players and officials at the UEFA Champions League Final held at Wembley in 2011, after UEFA decided not to award the 2010 final to the UK due to the potential tax implications, and the Finance Act 2012 includes a similar tax exemption so the 2013 Champions League Final can be held in London. The Olympic and Paralympic tax exemption is much broader, and a similarly broad tax exemption is planned for the 2014 Commonwealth Games in Edinburg.
Other high-profile sporting events in the UK are not covered by this sort of tax exemption, including Wimbledon, the Open golf championship, Test cricket matches, and other European football matches. In addition, most UK residents are subject to UK tax on their worldwide income, although non-domiciled individuals may be able to claim the remittance basis on their overseas income. The increasing rates of income tax in the UK have been a factor in some non-UK sportsmen leaving the UK, such as Cristiano Ronaldo and Xavi Alonso, and in some UK sportspeople taking up residence elsewhere, such as Jenson Button and Lewis Hamilton. Spain introduced a special income tax regime for sportspeople and others moving to Spain - the so-called "Beckham law" - providing exemption from Spanish tax on foreign income and a flat-rate tax regime for Spanish income for up to 6 years, although this has been considerably restricted more recently.
It seems that the UK will need to grant tax concessions to non-resident sportspeople if they are to appear at events in the UK. Rather than a blanket exemption, a middle road might be to tax only UK appearance fees and prizes, and/or only a proportion of endorsement income from UK sponsors, rather than all sponsors. However, the British public might be forgiven for asking why some of the world's most successful and wealthy sportsmen and multinational companies associated with sporting events should not make an appropriate contribution to society by paying tax on income related to the Games.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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