David Jetuah, Accountancy Age, Thursday 19 August 2010 at 00:00:00

UK will struggle to attract major sporting stars such as Usain Bolt and TigerWoods if the taxman refuses to exempt foreign sportspeople from tax

When it comes to taxing overseas athletes on their income, the world of sportisn?t a level playing field.

HMRC has the ability to choose the sporting events or individuals that canbenefit from exemptions to UK tax, but this inequality is under the spotlight asadvisers have begun negotiations with the government on the issue.

Advisers want all foreign sport stars? overseas earnings to be protected fromUK tax.

RSM Tenon is representing a number of individuals in negotiations with theDepartment of Culture Media and Sport, Accountancy Age has learned.

?The aim of discussions is to get an exemption for non-UK source endorsementincome,? said RSM Tenon tax director Pete Hackleton.

But what is the value in such a move for the taxman and what would bedemanded in return?

The compromise for HMRC would be that the tax revenues generated from havingmajor sporting events based here would make up for any supposed loss to theExchequer caused by dropping claims to overseas income.

?The rationale is that if this doesn?t happen, the UK will struggle toattract major events in future ? the tax take from which (VAT on ticket salesetc) should more than cover any perceived shortfall due to the exemption.Hopefully, there will be some movement on this,? Hackleton added.

The negotiations come after the taxman was criticised after some of thebiggest names in sport, including sprint star Usain Bolt and top golfer TigerWoods, threatened to steer clear of the UK.

In the case of Bolt, he would have had to pay 50% tax on not only his UKincome but a slice of his worldwide earnings would have been taken as well.

Under the UK tax system, non-resident sportspeople are subject to the basicrate of UK income tax on earnings due to their ?performance? in the UK.

The taxman uses a test case victory against tennis star Andre Agassi as thelegal precedent to deny exemptions, but in the run-up to major sporting eventssuch as the 2012 Olympics it becomes even more important to know what falls inand out of the taxman?s net.

Earlier this month Hartley Foster, tax disputes partner at law firm Olswang,called the situation ?absurd?.

The US operates on a similar model but the one key difference is that thelevel of income tax demanded is far lower than the 50% required in the UK.

Double tax treaties between the UK and other countries usually exemptindividuals from taxation if they are in the UK for only a short time.

How*ever, under special rules for ?foreign entertainers and sports*people?overseas athletes can still be subject to UK taxation.

The UK and other countries have difficulty collecting money from playersbecause tax organisations with different policies have to operate alongside eachother. What counts as their ?earnings? represents another grey area in itself.

The length of a given player?s ?season? is a big discussion point incalculating tax bills. For example, if a player earns 5m per season but theseason is only six months.

If the player competes for a week in the UK, it is open to interpretationwhether 1/52 or 1/26 of the pay packet should face UK tax.

After-dinner engagements, TV appearances and sponsorship generated after UKappearances must all be considered by the taxman.

A senior source at HMRC said the UK was ?not the only country which goes

after sports stars? worldwide income?, so efforts to win the exemption for allmay not be easy.