Talk in the media and among the public about the huge wage demands made by some footballers will reach a crescendo at the end of the transfer window this month. This makes it timely to reflect on image rights.
The sporting world spent last week following the biggest transfer in football history: Neymar's move from Barcelona to Paris St-Germain (PSG) for the grand sum of 222 million euros (£200 million). On top of a record transfer fee, Neymar will also take home an annual salary of £26 million after tax for five years, according to reports.
Neymar is a brand in his own right, and his image is worth potentially ‘billions’. A report says he earns 22 million euros (£20 million) per season through sponsorship. This is where image rights come into play.
Image rights cover endorsements, sponsorship, merchandising etc. for which fees are paid, separate from the footballer’s activities as a player. This is paid by advertisers, or the employing club to the player or to a company nominated by him.
We do not know what deal has been struck over Neymar's image rights, not least because it involves foreign tax authorities – so let us look closer to home. Foreign footballers often play for UK clubs and are subject to normal UK tax while employed here. However, non-playing activities such as image rights are frequently paid to a company owned by or for the benefit of the player.
If the company is non-UK resident and the dividends it pays to the foreign footballer are not remitted to the UK and if the company is based in a tax-free country, no tax may be payable to HMRC.
HMRC challenged payments to players' personal service companies 20 or so years ago but lost in the courts, in a case reported under ‘Sports Club v HMIT’.
There has recently been a report from the Public Accounts Committee condemning this situation and recommending change.
The Government has announced that HMRC’s dedicated technical experts will visit all English Premier League, Championship and Scottish Premier League clubs over a three year period and review all compliance risk arising from the present state of affairs.
The Public Accounts Committee noted that ‘HMRC had open enquiries about image rights on 43 footballers, eight agents and 12 clubs. We were appalled to hear that not all football clubs are providing data under a voluntary arrangement with the English Premier League’. The Committee approved of HMRC's willingness to go back to ministers with a view to reforming the current law on image rights, ‘which must be included in the next Finance Bill to ensure that this tax revenue is no longer lost’.
However, the Committee has recommended that HMRC conduct a formal evaluation of its High Net Worth Unit and report back to the Committee. It suggests consideration be given to requiring the disclosure of assets of High Net Worth Individuals, and to ‘publish its actions to investigate the data leaked in the Panama Papers’.
The announcement looks rather like an exercise in kicking the problem into the long grass. Whether things will change remains to be seen but it seems unlikely at least for the next four or five years - with five years the length of Neymar's new contract at PSG.
Blog by Nigel Eastaway OBE, is a former Council member at the Chartered Institute of Taxation (CIOT) and current member of the CIOT's Technical Committee