PUBLIC CONSULTATION PAPER Double Tax Conventions and the Internal Market: factual examples of double taxation cases Identification of the stakeholder for individual taxpayers Name: CCPR (See also privacy and data protection statement and questions 1 and 2 below. Neither your name nor your contribution will be published unless you so consent.) Introduction CCPR is the national alliance of governing and representative bodies of sport and recreation in the UK. Our 311 members represent 150,000 clubs across the country and some 8 million regular participants. CCPR exists to promote the role of sport and recreation in healthy and active lifestyles, to encourage a policy and regulatory environment in which sport from grassroots through to elite level can flourish, and to provide high quality services to help its members continually improve and progress. CCPR provides these organisations with a single, independent voice ensuring that their interests are represented and that they have the skills and capacity to deliver high quality sport and recreation across the country. The double taxation of sportspeople not only has a direct affect on the individual, but also on sports organisations in the UK as it often prevents appearances by top level sports stars as taxation on endorsement income can exceed prize money (see Part 2, Question 5 for more details). In certain circumstances, this prevents sports organisations winning bids to host international events too. This response has been formulated to represent both overseas sportspeople attending events in the UK and national governing bodies of sport in the UK which host international events. CCPR directly represents national governing bodies of sport, while leading tax specialists have been consulted for specific details on individual clients. - 1 -
1. Do you agree to having your response to the consultation published along with other responses? * 1 X Yes No 2. Do you agree to having your name mentioned as one of the contributors to the consultation? * X Yes No 3. In which country are you a resident? * Austria Finland Latvia Romania Belgium France Lithuania Slovakia Bulgaria Germany Luxembourg Slovenia Cyprus Greece Malta Spain Czech Republic Hungary Netherlands Sweden Denmark Ireland Poland X United Kingdom Estonia Italy Portugal Other. (Please also specify the country of tax residence if different) Austria Finland Latvia Romania Belgium France Lithuania Slovakia Bulgaria Germany Luxembourg Slovenia Cyprus Greece Malta Spain Czech Republic Hungary Netherlands Sweden Denmark Ireland Poland X United Kingdom Estonia Italy Portugal Other. 1 All questions marked with an asterisks are compulsory. - 2 -
3.1. If you were resident in a different country when the double taxation occurred, please specify in which one. Austria Finland Latvia Romania Belgium France Lithuania Slovakia Bulgaria Germany Luxembourg Slovenia Cyprus Greece Malta Spain Czech Republic Hungary Netherlands Sweden Denmark Ireland Poland United Kingdom Estonia Italy Portugal Other. 4. In which country (ies) are/ were you active professionally? * Austria Finland Latvia Romania Belgium France Lithuania Slovakia Bulgaria Germany Luxembourg Slovenia Cyprus Greece Malta Spain Czech Republic Hungary Netherlands Sweden Denmark Ireland Poland X United Kingdom Estonia Italy Portugal X Other. (below).. While CCPR is based in the UK, those represented in this consultation come from all over the EU to participate in the UK. - 3 -
5. What is the nature of your cross-border income(s)? * income from immovable property business profits dividends interest royalties capital gains income from employment pension X other: Endorsement income for sports people (and entertainers) 6. Please specify the approximate amount of your cross-border income: * See question 5 of part 2 of this consultation. currency:... 7. What percentage of your total income(s) is (are) derived from crossborder activities? * 0.1 5% 5 15% 15 25% 25 50% 50 75% 75 100% See question 5 of part 2 of this consultation. - 4 -
Questionnaire for individual taxpayers who have encountered double taxation which has arisen in a cross-border situation 1. Have you encountered double taxation which has arisen in a cross-border situation? * X Yes No Yes, individual taxpayers are non-uk resident sportspeople and entertainers subject to double taxation. 1.1. If Yes, please indicate how many cases of double taxation in a crossborder situation you have experienced from January 2000 to date? * More than 100 in each tax year since 2000. The response outlined below is generic in relation to sportspeople in the UK. If you wish to report more than one case, please reply "Yes" in your response to Question 11 below and please complete again questions 2 to 10 for each additional case 2. Which Member States were involved? * Austria Finland Latvia Romania Belgium France Lithuania Slovakia Bulgaria Germany Luxembourg Slovenia Cyprus Greece Malta Spain Czech Republic Hungary Netherlands Sweden Denmark Ireland Poland X United Kingdom Estonia Italy Portugal The incidents of double taxation elaborated upon in this consultation are from the UK, however, double taxation has been reported by residents of most countries in the EU to our tax partners. All are affected in the same way by the tax rules on non-resident sportspeople and entertainers. - 5 -
3. Is there a Double Taxation Convention in force between the Member States involved? * X Yes No Don't know 4. Please state the reason(s) for the double taxation and the approximate amounts of income, tax, interest and penalties involved *: It is not possible to disclose precise details of individuals managed by our tax specialists, however a generic example- including financial details- is set out in the answer to question 5 below. conflicts on tax residence See q5 conflicts of qualification of income limitations in credit method withholding taxes on portfolio dividends - 6 -
exit taxes application of anti-abuse measures inheritance taxes divergent taxation of pensions in different states withholding tax relief procedures other (please specify): - 7 -
5. Please give any other relevant details about the cross-border double taxation case(s) and the way it (they) arose (Max 500 words) 2 Across the EU, sportspeople and entertainers who are not resident in the jurisdiction in which they are competing are subject to income tax on prize money earned or direct appearance fees associated with their performance in that jurisdiction. This is an accepted principle which applies across the EU. Clearly, in addition, the individuals are subject to income tax on their Worldwide income in the jurisdiction in which they are resident, and typically double taxation relief is available in relation to taxation suffered overseas. However, the UK treat non-resident sportspeople differently. In addition to taxing prize money, the UK tax authorities (HM Revenue & Customs, or "HMRC") seek to tax the sportsperson on a proportion of their global endorsement income. So for example for a Cypriot resident tennis player, who has a personal service company which enters into contracts with sponsors in Cyprus and other countries (say the US), the UK seek to tax a percentage of this income based on the number of days on which the player competed in the UK. Therefore if the tennis player has 2m per annum of sponsorship income, and plays in the UK on 10 days in the year (out of a total of 100 playing days), then 10% of this income ( 200K) will be brought into the charge to UK taxation on top of the players prize money. If the player earned total prize money of 150K, the additional 200K of endorsement income allocated to the UK would be subject to the top rate of income tax (50%). In total therefore, the tennis player would pay more in UK income tax than they actually earned by competing in the UK. In addition, against the players domestic tax liability, a foreign tax credit is typically only available for "creditable foreign tax". To the extent that the endorsement income which was taxed in the UK has been earned in a corporate entity, and is not therefore subject to income tax in the territory of residence, no credit will be available for this element of UK tax. The top rate of income tax varies across the EU, from 10% in Bulgaria to 58% in Denmark. Where an athlete is resident in a jurisdiction with a lower rate of income tax they will suffer an additional tax cost when they compete in a territory with a higher top rate of income tax. Sportspeople accept this, but what is unacceptable in relation to the UK legislation, is the way in which the taxation of endorsement income creates an additional tax cost for other EU residents, for which they are often unable to claim any double tax relief. 2 Please continue on a separate sheet if necessary (max 500 words). - 8 -
6. Have you sought any remedies to eliminate the cross-border double taxation? * X Yes No 6.1. If Yes, please specify what action you took to eliminate the double taxation: * an appeal to the tax authorities in the state of source an appeal to the tax authorities in the state of residence X an appeal to a court in the state of source an appeal to a court in the state of residence an initiation of a mutual agreement procedure under a Double Taxation Convention other (max 500 words) In relation to the double taxation rules as they apply to non-uk resident sportspeople, a case involving Andre Agassi was taken to the highest level of tax law in the UK (The House of Lords) in which the the authorities were successful. 6.2. If No, please explain why you did not seek any remedies: * I had insufficient resources to launch an action too time consuming no expectation of successful result not enough information on the possibilities of remedy other (max 500 words) n/a.. 7. If Yes to question 6: Has the procedure you initiated been closed? * Yes, and the double taxation was entirely eliminated Yes, but the double taxation was eliminated only partially (specify percentage). < 10% 30 40% 60 70% 90 100% - 9 -
10 20% 40 50% 70 80% 20 30% 50 60% 80 90% Yes, but the double taxation was not eliminated at all X No, the procedure is ongoing. Whilst the Agassi case itself is closed, discussion with officials regarding doubletaxation continues. 7.1. If Yes, please describe the outcome in more detail including the time taken in months and any compensation you received in respect of the time it took to reach a solution (Max 500 words) * Time taken:. months n/a... 7.2. If No, please provide the reasons and indicate since when your case has been open and, if you know this, when you expect it to be resolved. (Max 500 words) * Case open: 1990s.. (month and year) Case resolved: n/a.. (month and year) Over the last 25 years, the way in which non-resident sportspeople in the UK are subjected to income tax has changed significantly. Some changes are legislative and others have come through a change in interpretation of regulations. The most significant case followed the pursuit of a proportion of Andre Agassi s endorsement income from the 1990s which went to the Court of Appeal and House of Lords. Here it should be noted that double taxation of endorsement income occurs for EU citizens too. Many tax returns are still not agreed from as far back as the 1990s and the principle of double taxation means that many sports players do not take part in certain events in the UK. Sports organisations have engaged with Her Majesty s Revenue and Customs over the past decade and more recently a formalised major events tax stakeholder group was set up, but HMRC was unable to make any firm commitments ahead of the UK elections in May 2010 and current discussion has stalled as the new Government takes over. The new Government has promised a Major Event Bill, however, and it is hoped that guidance on the - 10 -
legality of double taxation from the EU would help create proposals which would end double taxation. 8. What were the approximate costs involved in the elimination of the crossborder double taxation? * Legal costs Administrative costs Other:.. See below The costs of completing tax filings and agreeing an apportionment of endorsement income to the UK can be significant; we are aware that certain athletes are still seeking to settle tax returns going back for 10 years, and therefore the costs associated with these enquiries are significant. In addition, the additional tax costs for the non-resident sportspeople can be huge. 9. On the basis of your practical experience, please suggest ways for the effective and rapid elimination of double taxation within the EU. (Max 500 words) a. Removal of taxation on endorsement income for foreign sports players in the UK Double taxation treaties protect employees, but deny relief for sportsmen and entertainers. The UK charges sportsmen and women a proportion of their overseas endorsement income for participating in the UK, as opposed to simply seeking taxation on prize money and services physically performed in the country (as is the case in all other EU states). The result is that either National Governing Bodies of sport needs to find more prize money for it to be worthwhile for top sports stars to come to the UK or they simply will not participate. For example, many top golfers do not play in any British tournaments other than the Open. b. Different treatment of image rights contracts for UK residents and EU residents Because sportsmen and women are double taxed on endorsement income, sportsmen and women do not have full freedom to provide a service in the UK; they are effectively penalised by working overseas. EU nationals receiving endorsement taxation through a personal service company are subject to more burdensome taxation requirements than UK residents. This is discriminatory and against the principles of the Double Tax Treaties. In a - 11 -
true single market, it would be not unrealistic that taxation should only be levied in the country of residence. 10. Is there any other relevant information you would like to share? (Max 500 words) The following taxation issues outside the remit of the consultation could be addressed: a. Tax breaks for hosting international events As different Member States employ different taxation regimes for the hosting of major events, certain countries can be at a competitive disadvantage when liberal taxation regimes are applied. Many major international events insist on specific tax breaks (e.g. Champions League, Olympics) which either cannot be offered in some countries or are not offered to other sports. b. Inconsistency in taxation across Member States While the EU VAT Directive allows for exemptions or discount rates in the field of sport, not all Member States apply such rates. For example attending an event in the Netherlands is charged at 5% VAT compared to 17.5% VAT in the UK. While taxation should remain a competence of the Member State, the EU should encourage Member States to use the tax advantages afforded to them in the Directive. c. Taxation of National Governing Bodies National Governing Bodies of sport are not subject to the same taxation around Europe. Some countries offer tax incentives for international sports organisations to base themselves in their countries. There are also disparities in corporation tax for national sports federations across Europe, with only the UK failing to offer its Olympic committee an exemption. 11. Would you like to report on more cases of double taxation? Yes X No If you wish to report more than one case, please complete again questions 2 to 10 for each additional case. Thank you for your contribution to this public consultation! - 12 -