Carousel_Arrow Chat IHT_trust_wills IR35 Combined Shape 2 Group 10 Login Mobile Menu Share Share Email SubMenuMobile Group 9 VAT View_Gallery View_List capital_allow Triangle 2 Copy Close construction cyberpro employment_tax_shares emplyer_solutions entrepreneurs_corps fee_protect Group 7 grant_fund Group i_Clock i_Consult i_Done i_Eligibility_Tick i_Enter i_Filter i_HMRC i_Negative i_Play i_Plus i_Reset i_Support_Legal i_Support_TaxDesk i_Support_VAT i_Tick noun_marketing_1872083 noun_online_2126759 i_download i_meet Group Copy 24 Group 18 noun_electrical_1240755 copy noun_Technology_2125422 noun_Science_2031115 i_tick_bullet_block international_tax patent_box private_client property_sdlt r_and_d reliefs_incentives Search specialist_tax status tax_indemnity valuation
icon_cookie Created with Sketch. Cookies

We use cookies on this website. You can choose to accept them all or to opt out of some. You can change your consent at any time by opening this window again

This includes all necessary technical and session cookies, plus performance, tracking and persistent cookies.

If you choose this option, we will block all performance, targeting and persistent cookies. Many parts of this site will then not work.

Please read the full details in our Cookie Statement.
Markel Tax

16 Apr 2018

UK: International transfers of professional football players

An international transfer of a football player from one professional club to another may cause various financial streams with specific tax ramifications with sometimes doubtful solutions. The purpose of this comparative survey will be to analyse the most common tax ramifications and how these are dealt in the national systems of several countries. The survey shall cover the tax treatment of the income paid to the player and other payments, such as agent’s fees or commission fees from the point of view of the player and agent. There may also be consequences for other parties involved, e.g. parties owning part of transfer rights etc. In a later issue we will also look at the position of the clubs and the VAT consequences.

Player X’s tax ramifications.

Suppose Player X, resident for tax purposes in the UK, is transferred at the end of July on a definitive basis from a UK club to Club C located in State C.

1. Will Player X cease to be a UK resident upon the transfer to State C for the fiscal year in which the transfer occurs? Will Player X acquire State C tax residence in the same fiscal year in which the transfer occurs?
The UK residence position of an individual will be determined by the Statutory Residence Test which was introduced by Schedule 45 of the Finance Act 2013. In most cases, as Player X will be leaving an employment in the UK to take up a full time employment in another country, they will be regarded as ceasing to be resident in the UK at that time they leave the UK to take up the employment with Club C under what are known as “Split Year Treatment” as defined within the legislation. This treatment will split the UK tax year of departure into a portion of UK residence up until the date of departure and a portion of non-residence from the date of departure to the end of the tax year.
If it is not possible to take advantage of Split Year Treatment then Player X will remain resident in the UK for the full UK tax year. It may be possible, however, for Player X to claim relief under a double tax treaty between the UK and State C.
In either case Player X will be liable to UK tax on any income that arises within the UK. This will include any earnings paid for playing for Club B as well as any income from UK investments.
Whether Player X becomes a resident of State C will depend upon the tax laws of that jurisdiction. If a transfer takes place at the end of July then Player X may not spend sufficient days in State C to be regarded as resident. Assuming he is playing for Club C, however, it would normally be the case that Player X would be resident in State C or would be liable to tax in State C on earnings from playing for Club C.

1.1. What is the tax treatment for income tax purposes in the UK of any payment made by Club B to Player X upon the termination of the employment relationship?
Where Player X receives a payment on the termination of their contract with Club B that payment will generally be regarded as part of the employment income of Player X and subject to income tax. There are, however, some exceptions to this general rule.
Firstly, the first £30,000 of a payment on termination of employment can be paid free of tax provided certain conditions are met. A payment in lieu of a notice period or any contractual entitlement to a payment on termination will not, however, be able to take advantage of this relief.
It does not matter whether the payment is made at the time of the termination of the contract or after when Player X is no longer resident in the UK. As the payment relates to the contract to play for Club B whilst in the UK then it will be taxable in the UK.

1.2. What is the tax treatment for income tax purposes in State C of any payment made by Club B to Player X upon the termination of the employment relationship?
Any payment received by Player X after becoming resident in State C may be taxable in State C depending upon the local tax laws of that country. In most double tax treaties with the UK there is a provision for such payments to be taxed in the country of residence but also in the country in which the duties are or were performed. Alternatively, a payment by Club B in the UK would be sufficient to give a taxing right to the UK in these circumstances. Where this is the case any tax due in State C would be reduced by tax suffered in the UK on the same payment.

1.3. What is the tax treatment of one time payments once re-transferred? e.g. Player X is entitled to a percentage of any transfer sum in the event of a future transfer. Which country is entitled to tax such payment?
Where Player X receives a payment from Club B in the UK as a result of a transfer on from Club C then the payment will be regarded as part of the contractual arrangements of the employment with Club B. As such the UK tax authorities will look to tax Player X on the payment as relating to a UK employment. There is, however, a counter argument that, if the re-transfer payment is negotiated at the time of the transfer to Club C, the payment cannot relate to the duties of the employment with Club B. As such, the payment should not relate to the employment and would, therefore, not be taxable in the UK.
The tax treatment of the payment in the UK is, therefore, likely to depend upon the contractual terms under which it is paid.
Within State C it would, once again, be necessary to look at the tax legislation in the specific jurisdiction to determine how the payment would be taxed in that state.

1.4. What is the tax treatment of the payment of the agent fees by Club B or Club C on behalf of Player X and in which country will the payment be taxed?
The payment of agent’s fees has been the subject of much interest in the UK. The tax treatment will depend upon who the agent is providing services to. Where the services are provided to the club then no tax charge arises on the player. Where, however, the services are provided to the player then a charge to tax can arise if the agent’s fees are paid by a third party. In recent years there have been a number of cases of agents acting for both a club and a player. In these circumstances it is necessary to analyse who is actually receiving the services.
Where fees of an agent for services provided to Player X in relation to the termination of the contract with Club B are paid by Club B or Club C then those fees will be viewed as relating to the UK employment and, therefore, taxable in the UK as employment income.
Where fees of an agent for services provided to Player X in relation to the commencement of a contract with Club C are paid by Club B or Club C then those fees will be viewed as relating to the employment with Club C. As those fees do not relate to a UK employment then they are only likely to be taxed in the UK if Player X is both domiciled and resident in the UK at the time the payment is made. If the payment is made after Player X ceases to be resident in the UK then the payment is unlikely to be subject to UK tax but would be liable to tax in State C.
In practice, any payment by Club B is likely to be regarded as relating to the contract (or termination thereof) with Club B and therefore subject to UK tax. The payment may also be subject to tax in State C if Player X is resident in State C at the time the payment is made but with a credit for any tax paid in the UK.
Any payment by Club C is likely to be regarded as an inducement for Player X to sign a contract with Club C and therefore taxable only in State C.

Suppose Player X, resident for tax purposes in the UK, is transferred at the end of July on a loan basis from Club B in the UK to Club C located in State C.

2. Will Player X cease to be a UK resident upon the transfer to State C for the fiscal year in which the transfer occurs? Will Player X acquire State C tax residence in the same fiscal year in which the transfer occurs?
The UK residence position of Player X will once again be determined by the Statutory Residence Test. However, as the loan period may only be for one season or part of a season, Player X may not be regarded as taking up a full time employment in another country. It is therefore likely to be necessary to look at further steps within the Statutory Residence Test to determine residence status of Player X. This may mean considering the number of “connections” the individual has with the UK and how many days they spend in the UK. A detailed analysis of the UK’s Statutory Residence Test is outside the scope of this article but there is a possibility that Player X will remain resident in the UK after the loan period commences.
Whether Player X becomes a resident of State C will depend upon the tax laws of that jurisdiction. If the loan commences at the end of July then Player X may not spend sufficient days in State C to be regarded as resident. Similarly, if the loan period lasts only to the end of the playing season, Player X may leave State C in May and not be resident in that country for that year.

2.1. Should Player X continue to be paid by Club B, what is the tax treatment in the UK and State C of such payment for income tax purposes?
If Player X ceases to be resident in the UK then he will not be liable to UK tax on any remuneration paid to him during the loan period in a similar way to a full transfer as referred to above. If the remuneration is paid by Club B from the UK then the default position is that Player X will have UK tax deducted from the payment. He would then be able to make a claim within a UK tax return for repayment of tax deducted from work during the period of non-residence (i.e. the loan period). However, if Club B are willing to assist, a “NT” (No Tax) tax code can be requested which will prevent the deduction of tax at source.
If Player X does not cease to be resident in the UK then he will remain liable to UK tax. He may, however, be able to claim relief from UK tax under a double tax treaty or, if he is not domiciled in the UK, he may be able to claim the remittance basis of taxation so that overseas work (i.e. playing for Club C in State C) is not taxed in the UK if the payments are received and kept outside the UK.
Assuming he is playing for Club C it would normally be the case that Player X would be taxable in State C on earnings from playing for Club C. If Player X is resident in the UK and taxable on the same earnings then a credit will be allowed for any tax correctly paid in State C.

2.2. Should Player X be paid by Club C, what is the tax treatment in State C and the UK of such payment for income tax purposes?
Where payment is made by Club C then Player X will be regarded as receiving employment income and will be taxable in the UK if he remains resident in the UK unless relief may be claimed under a double tax treaty between State C and the UK or Player X is not domiciled in the UK, claims the remittance basis of taxation and does not transfer any of the payment to the UK. The payment may also be liable to tax in State C as that is where the employment duties (i.e. playing for Club C) will be undertaken. If tax is paid in State C then a credit will be given against any UK tax payable.
If Player X is not resident in the UK then no UK tax liability will arise. The payment will then be liable to tax in State C in accordance with the tax laws of that country.

2.3. What is the tax treatment of the payment of the agent fees by Club B or Club C on behalf of Player X and in which country will the payment be taxed?
The payment of agent’s fees will follow the treatment in paragraph 1.4 above.

B. COMMISSION AGENT’S TAX RAMIFICATIONS

3. What is the tax treatment for income tax purposes of fees paid to the agent involved in the negotiation of the transfer where:
3.1. The agent is resident in a treaty jurisdiction
Under most double tax treaties entered into by the UK the fees paid to the agent will be taxable in the UK if the agent has a “permanent establishment” in the UK. If there is no permanent establishment in the UK through which the agent carries on business then the agent will not be taxable on the payment to him in the UK. Tax would only then be due in the country of residence of the agent.

3.2. The agent is not resident in a treaty jurisdiction.
If the agent is not resident in a country with which the UK has a double tax treaty then the payment to the agent will still be free of UK tax unless the agent has a permanent establishment or other place of business in the UK.

3.3. The fee is paid by Club B in State B.
The tax treatment of the payment to the agent is not dependent upon where the fee is paid from or who makes the payment. The tax treatment of the fee will therefore follow the treatment in 3.1 and 3.2 above. There is no withholding tax on payments made for fees from the UK.

3.4. The fee is paid by Club C in State C.
The tax treatment of the payment to the agent is not dependent upon where the fee is paid from or by who makes the payment. The tax treatment of the fee will therefore follow the treatment in 3.1 and 3.2 above. There is no withholding tax on payments made for fees from the UK.

3.5. The fee is paid by Player X.
The tax treatment of the payment to the agent is not dependent upon where the fee is paid from or by who makes the payment. The tax treatment of the fee will therefore follow the treatment in 3.1 and 3.2 above. There is no withholding tax on payments made for fees from the UK.

Tagged Private clients Private clients
Next article in series

16 Apr 2018

Taxation of image rights