Sports Persons Moving Abroad: the Financial, Legal, Tax and Social Consequences
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Journal of Sports and Games Volume 1, Issue 3, 2019, PP 30-36 ISSN 2642-8466 Sports Persons Moving Abroad: The Financial, Legal, Tax and Social Consequences Athena Constantinou1 and Ian Blackshaw2* 1Managing Director, APC Sports Consulting, Nicosia, Cyprus 2Special Consultant, APC Sports Consulting, Nicosia, Cyprus *Corresponding Author: Ian Blackshaw, Special Consultant, APC Sports Consulting, Nicosia, Cyprus, Email: [email protected] ABSTRACT In this article, we will look at some of the financial, legal, tax and social consequences that arise when professional sports persons move abroad to practise their sports. We will concentrate on football players, as football is the world’s most popular and lucrative sport. We will also concentrate on the tax aspects, as tax is such an important subject with often significant financial effects. Finally, we will draw some general conclusions. INTRODUCTION Signing a new playing contract in a foreign country comes with a different legal and tax system Migration is a defining feature of the present (local professional advice will be needed); a times in which we live, with people on the move different language (a dual language version of around the world in search of better lives for the playing contract will be needed); an alien themselves and their families. This is a pressing culture; a change of team and colleagues; and a and controversial phenomenon - not least in new social context. Let us deal with the last Europe. point first. This trend is also manifesting itself in the world SOCIAL ASPECTS of sport. As far as sports persons with families are In the last thirty years or so, we have witnessed concerned, they will have to cope with a number a large number of sports persons moving abroad of social issues, such as: for better sporting opportunities in the furtherance of their sporting careers. finding suitable housing; finding suitable schools; Take football, and in particular the English Premier League, for example establishing new routines; and Creating new circles of friends. According to Gareth Southgate, the English National Team Manager, only 15% of players in They will need professional guidance and advice the League will be eligible to play for England for dealing with all of these matters. in the next ten years; and, in the last football In particular, they will need to create, at the outset, season, 2018-2019, only 19.9% of starting slots a support network of reliable and experienced at the top six clubs were filled by English players. professional advisors in their new home country, This trend is expected to continue unless the who will be able to help them to settle down football authorities encourage so-called „home- and, hopefully, integrate in their new working grown‟ players. This has been a thorny issue in and living environments, with the minimum of football circles for several years. „Brexit‟ and delay. the increasing need for work permits for foreign They will also need to have - at least - a basic or players coming from the EU to play in the UK working knowledge of the local language. may possibly also help to arrest this trend! All of this will not be easy and will, therefore, Sports persons moving abroad face a number of need careful planning and an ongoing awareness challenges: financial, legal, tax and social. of and attention to the details! Journal of Sports and Games V1 ● I3 ● 2019 30 Sports Persons Moving Abroad: The Financial, Legal, Tax and Social Consequences FINANCIAL AND TAX ISSUES whether they are competing individually or in team sports. The financial aspects of the move are inextricably linked with the tax issues. Having a good Residency is important for athletes whether financial package - salary, bonus, allowances competing in individual or team sports. Athletes and expenses - is one thing, but having to give are taxed in the country of their tax residency; most of it away to the tax man, through lack of however, when they compete with their team in a foreign country, any earnings attributable to tax planning, is something else. Thus, where it is the particular foreign country will most likely be legally possible to do so, sports persons need to taxable in that foreign country and athletes can arrange their financial affairs in such a way as to take a tax credit for the tax paid there when reduce the tax burden, as far as possible. This is filing their tax returns in their country of tax tax avoidance, which is perfectly legal, as opposed residence. to tax avoidance – that is, hiding taxable income – which is not. In fact, it is a criminal offence. Any sponsorship or endorsement income received And can land the offender in jail! by athletes competing in team sports is taxed separately. Usually, all types of income are As already mentioned, in the last 30 years, there structured to be received through a corporate have been tremendous cross border movements entity owned by the athlete, in order to optimize in the world of professional sports. the tax burden. For example, there have been a number of NBA It should be noted, however, that such entities players moving to Europe near the end of their are highly scrutinized by the tax authorities of sports careers to play in the European Basketball most countries; therefore, these arrangements League (Euro League); a number of soccer players must have commercial substance to justify their moving from Europe to the United States to play existence. Practices, such as having offshore for the MLS; and so the list goes on. companies and accounts, which aim at hiding commercial income, should be avoided, in order During the past couple of years, with the growth to steer clear of any penalties or criminal of the Chinese Super League (Soccer), and the charges from the relevant tax authorities for tax Chinese Basketball League, we have also seen a evasion. trend of near-retirement players moving to China to play either in the CSL or the CBL. A common misconception amongst international athletes is the belief that their tax obligations Players moving abroad have to face a number of end by paying taxes in the country where they challenges when settling and adjusting to the are employed; this is usually not the case and new reality of things, not least in the field of athletes should be aware that they may have a taxation. tax liability in both their country of citizenship In fact, one of the biggest hurdles faced by and their country of tax residence, that is, where athletes playing abroad is dealing with the tax they are currently living and playing. The obligations that arise from their foreign playing athlete‟s country of citizenship or domicile is contracts. the country where they come from; their country of tax residence is the country in which they The fact that athletes are playing in foreign currently live and work. countries does not relieve them from their tax obligations back home and their foreign contracts In most countries, in order to be considered to may give rise to income tax in their home be tax resident, one has to live there for a period countries, in addition to the tax paid in the covering a total of 183 days or more within a foreign country where they are playing. calendar year. Most tax authorities impose tax on visiting sports There are four different ways in which countries persons based on the principles of residency and all over the world apply taxation in terms of source of income. As a result, professional sports residency and citizenship and these are as persons competing internationally have be alert follows: to the fact that they may incur tax obligations taxing both their citizens and residents on both in terms of tax filing and tax liability in the their world-wide income no matter where countries where they are competing. they live (for example, the United States); The tax obligations of professional sports persons taxing their residents on their world-wide competing internationally vary, depending on income (for example, the United Kingdom); 31 Journal of Sports and Games V1 ● I3 ● 2019 Sports Persons Moving Abroad: The Financial, Legal, Tax and Social Consequences taxing their citizen residents only on their Therefore, an understanding of the tax treatment world-wide income and not the foreign of their contracts and the allocation of the residence of their country (in the case of a resulting tax burden will be helpful to players „non-dom‟ tax regime); during the course of their contract negotiations Taxing their residents on their local source with clubs. income but not on their foreign source income The complexity of tax systems places a heavy (territorial tax system). toll on professional sports persons competing There are also a few countries that have specific internationally. Much preventive planning has to regulations providing tax incentive packages for be done on the athlete‟s part to optimise their overall taxation position and be tax compliant foreign sports persons moving to their country. wherever they are competing. It is vital, therefore, These incentive packages usually differ from the for athletes moving into the international arena, country‟s standard tax regulations, like the to get assistance from an experienced professional „Beckham‟ tax laws of 2005 in Spain. The so- tax consultant, who will advise them on how to called „Beckham law‟ basically allowed foreign handle the different tax obligations when they players living and playing in Spain to be taxed sign a sports contract abroad. at the rate of 24.75% instead of a progressive tax scale ranging from 24% up to 43%. After all, when it comes to tax compliance, the final responsibility and liability lies with the It is, therefore, important that athletes are aware player him or herself and no one else! of the tax treatment of their earnings in both their One area where the tax position of sports persons country of citizenship and country of residence.