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Over the top tackle? Tax’s role as carrot and stick

Author

Andy Wood

Andy is a practical, creative tax adviser who assists a variety of clients in achieving their personal and commercial objectives in the most tax efficient manner.

If you’ve paid even passing attention to print and broadcast media over the last few weeks, you will perhaps be aware that we are currently in close season for many of the world’s leading football leagues.

This is the time when clubs consider their squads for the next campaign, spending ever larger amounts in an effort to assemble teams with trophy-winning potential.

In the case of sides in championships funded by lucrative television contracts, the transfer fees and salaries can run into many tens of millions of pounds for individuals thought capable of making a critical difference.

As marketing has cemented football’s place as a true global game, that sense of competition has not been limited to rivalry between the clubs but leagues themselves, trying to outbid each other to attract those stars who can build a fanbase and TV audience.

That development –a kind of footballing arms race – has caused concern among supporters and economists alike, both wondering about the sustainability of the sport and the rising cost of season tickets.

From the other side of the world, the first initiative aimed at checking spiralling spending has been announced.

China’s football association has declared that clubs making up the country’s Super League will face a 100 per cent tax on all signings during the mid-season transfer window which opens on Monday.

The measure is designed to curb the kind of outlay which recently saw the former Manchester City and Manchester United striker Carlos Tevez signed for £40 million from Argentinian side Boca Juniors and handed a contract worth £310,000 a week.

It follows accusations back in January by the government agency overseeing sport in China that the sums shelled out by clubs were so vast that they were effectively “burning money”.

Of course, although this is a very high-profile example, it’s not the first time that tax has been used to shape the behaviour of organisations and individuals.

We don’t have to look to the Far East either for evidence of how governments and tax authorities have sought to get us all to change our habits – and how we people have tried to circumvent whatever constraints are put in place.

Take the way that so many people dodge the tax on alcohol which is so regularly revised in the Chancellor’s Budget each March. The so-called booze cruises to the hypermarkets of northern France are possibly the simplest form of tax planning around.

Levies on alcohol and tobacco are one method which successive administrations have used to try and curb behaviour seen as damaging to our well-being if indulged in to excess.

A similar and more recent introduction was the sugar tax on fizzy drinks unveiled by Philip Hammond in March which, he estimates, could generate as much as £1 billion to fund schools as well as perhaps persuading consumers away from products which evidence suggests could contribute to tooth decay and diabetes.

Tax isn’t always used as a big stick but can reward good behaviour, such as in the range of environmental taxes, including those covering the amount of waste sent to landfill sites or reducing carbon emissions.

An objective onlooker might consider the dominant narrative, though, to be one of coercion, as a Supreme Court case scheduled for next month illustrates.

Having been told that HMRC’s taxation of big corporations with foreign subsidiaries was not only unfair when compared to those companies without overseas offices but discriminatory – restricting the free movement of capital – it has been successively taken to task by firms affected.

British American Tobacco (BAT) has already claimed almost £1 billion from the Revenue as a result and the owners of the former Littlewoods mail order catalogue business are the next to seek an even bigger sum.

On top of the tax being repaid, judges decided that affected companies should receive what is known as ‘restitutionary interest’ to make up the differences in their finances while HMRC held onto sums to which it wasn’t entitled.

Even so, a law has been passed meaning that the firms have to pay 45 per cent of that interest back in tax.

More than merely being interpreted as the response of a bad loser, it suggests how the Revenue’s political overseers object to having domestic law blunted by European courts – one of the arguments behind the Brexit of a year ago.

That isn’t all HMRC’s fault but it would seem to be a more than willing accomplice, especially when the alternative is a grilling from the Public Accounts Committee on how much more might be done to increase the tax ‘take’.

Whilst the authorities in China might have more freedom in imposing eye-watering tariffs which could choke football’s prospects of its domestic leagues, it is certainly not alone in using off-the-ball tactics in an effort to secure a result.

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