It was only a matter of time before the debate over “fair taxation” would reach the world of football.
An Ernst & Young report in 2013 predicted that footballers would soon be the center of media attention for tax reasons. “Recognizing the fact that – in the eyes of the public – not only tax evasion but also any tax planning for higher income earning individuals and companies is more or less regarded as ‘tainted,’ one may expect that at some point of time also professional footballers may become subject to this discussion as well and will have the spotlights pointed at them.
”Especially where such players make use of tax planning techniques and streamline for example their image rights in a tax-friendly way via tax havens,” noted the report, titled “Tax and career facilities for professional football players in 2013.”
Since then, the game’s biggest stars, from Argentinian Lionel Messi, to Messi’s club FC Barcelona and Luis Felipe Scolari, who coaches Brazil, have been the subject of tax evasion charges. Messi and Scolari have been accused of passing profits derived from the use of their image rights to companies in offshore centers to evade the applicable taxes.
Charges against the 26-year-old Messi that he evaded 4.1 million euro in taxes were dropped in June after prosecutors accepted the explanation that he was not involved in the decision making that allegedly channeled untaxed income to companies in Belize and Uruguay. But his father Jorge remains the focus of investigations and Messi is facing additional tax charges of 33 million euro, Spanish media reported.
A tax fraud investigation against Scolari became public in May after Portuguese authorities requested information from the United States under a mutual legal assistance treaty. The Portuguese tax authority wants to know who the beneficial owners of several Miami bank accounts are. The accounts, which belong to three companies that at various times owned Scolari’s image rights, allegedly received about 7.4 million euro during a time when Scolari was the coach of Portugal’s national team – a sum that should therefore have been declared as local income. Meanwhile, Uli Hoeness, former player and president of German club Bayern Munich, commenced a three-year prison term last month after he was convicted of having evaded 25 million euro in taxes from currency trades in an undeclared Swiss bank account.
Despite these examples of alleged illicit activity, tax planning remains important for football’s highest earners. Moreover, tax considerations are also central to the financial management of less than stellar players. Football careers are unique. Professional footballers have to earn much of their wages in a relatively short time span before entering into an often uncertain alternative career, when age or injury forces them to retire.
Footballers come to the profession at a young age and often do not have the necessary experience or advice to manage their financial affairs properly.
Gordon Taylor, the chief executive of the English Professional Footballers Association (PFA), disputed reports in 2013 that three out five English Premier League players would go bankrupt within five years of their retirement, saying the number is more likely to be between 10 and 20 percent.
However, acknowledging that these statistics still point to extensive financial problems in the profession, he warned, “Footballers, with very few exceptions, aren’t going to earn as much money when they finish playing. We encourage young players to save for the future, for when they retire.”
“It is about saving, it’s about being sensible, it’s about being careful, it’s about not expecting to have the same lifestyle. It’s not everybody that can adapt. That exit strategy is quite important.”
The managers who often serve as the main advisors during the career of a players are nowhere to be seen when things go wrong or that career comes to an end, Taylor said.
Because professional footballers have comparatively large salaries and they tend to fall into the highest tax bracket, tax planning becomes an important factor for their future once their career is over.
A comparison by Ernst & Young of the tax treatment of professional footballers across 30 countries in 2013 found that players’ salaries in combination with pension funds are still attractive for players, despite the relatively high income tax rates they are subject to.
Spain and Netherlands, the finalists at the 2010 World Cup, were ranked at the top in terms of their tax and career facilities attractiveness, despite maximum income tax rates of 56 percent and 52 percent, respectively.
In general, Western European countries with high tax rates still end up at the top of the ranking because of their beneficial expatriate tax regimes and well-working pension and career funds, Ernst & Young noted. The reduction for pension payments at the top income level simply has an even stronger tax impact in progressive high-tax regimes.
The Beckham Law
Governments are well aware of the tax implications for high earners and while some have implemented amendments that would make their country, and domestic leagues, more attractive, others have tried to eliminate overly generous tax benefits on pensions, or even introduced supertax rates as high as 75 percent in the case of France.
Spain reformed its tax code in 2005 and passed what would become known as the “Beckham Law” – a special tax scheme applied to foreign workers who moved to Spain after Jan. 1, 2004.
Although it applied to all foreign workers, it seemed designed to attract football players like David Beckham, who were as a result subject to a 24 percent flat tax instead of the progressive income tax with a top rate of 45 percent when the law was passed.
Eligibility required the foreign worker not having been a tax resident in Spain at any time during the previous 10 years.
A 2010 study by National Bureau of Economic Research found that after the law was passed, Spain attracted a greater share of foreign players, whereas Italy saw its share of foreign talent diminish.
Authors Henrik Kleven, Camille Landais, and Emmanuel Saez used footballers as a proxy for the most mobile segment of workers to analyze the impact of top income tax rates on the cross-border movement of taxpayers.
After the European Court of Justice’s “Bosman ruling” liberalized the market for European footballers by deeming illegal rules that limited the number of foreign players, the researchers determined that “low-tax countries experienced an improvement of club performances by being better able to attract good foreign players and keep good domestic players at home.”
Countries that increased taxes on high earners, like Greece, in turn saw more local talent leave for foreign leagues. Their observations provide “compelling evidence of a tax-induced migration response,” the researchers noted.
French league players went on strike last year after the French government introduced a 75 percent supertax on income exceeding 1 million euro per year. When the tax was declared unconstitutional by the French courts, the law was redrafted to shift the tax burden from the players to the clubs as their employers.
The clubs, in turn, said that the tax would lead to an exodus of top players to rival leagues, as the payroll taxes paid by French clubs were already the highest in Europe. The Union of Professional Football Clubs in France claimed players’ wages were more than 30 percent higher than in Germany, England, Spain or Italy.
UCPF president Jena-Pierre Louvel said: “It’s a historic moment for French football. We’re talking about the death of French football.”