Tax planning: What can you do to best prepare for a transfer?
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Best Practice
Tax planning: What can you do to best prepare for a transfer?
by Manuel Alonso

The two clubs have agreed a fee, personal terms have been reached with the player and then at the last minute the move breaks down over tax issues. Here's why tax planning should take precedence when preparing your transfer business.

If proper tax planning is not done, some jurisdictions may categorise payments to agents as part of a player’s salary. In such moments, commission made payable to the agent may double and could put a transfer at risk. 
Manuel Alonso
Tax Partner, Baker McKenzie

With seasons across Europe coming to an end, the work is only just getting started away from the pitch as we head into a Summer Transfer Window which promises to involve huge sums for player exchanges, signing-on fees and salaries. 

 

While there are several factors which can influence a player’s decision to sign for a certain club, taxation is one the important considerations those on the move will have. 

 

Taxes can be the key to attracting or retaining talent, ensuring a deal is completed and helping clubs manage budgetary constraints induced by Financial Fair Play rules. 

 

Although Cristiano Ronaldo made it no secret that a new challenge was the drive behind his transfer from Real Madrid to Juventus in 2018, the Italian club were able to ensure the Portugal striker was able to retain a higher percentage of his wages due to the country’s favourable taxation advantages. 

 

The application of the tax regime for ‘impatriates’ in France was a gamechanger in facilitating Paris Saint-Germain’s signing of Neymar Junior from FC Barcelona in 2017, and has been of huge appeal when attracting some of the game’s biggest stars. 

 

If taxation can be at the forefront of two of the biggest transfers in recent history, how much taxation can impact a player’s transfer when moving abroad should not be undervalued. And when huge fees can be involved, cutting costs with savvy tax application can be pivotal to ensuring all parties are happy with a potential deal. 

 

So, what things can be done from a tax point of view to try to make a transfer cheaper?

 

Location is key

 

First and foremost, determining the tax residence of a player is vital and ultimately dictates tax applicable to the salary of a player and, therefore, how much money he actually gets to keep in his pocket. 

 

While the world has had to move with globalisation and assess how tax residency is decided, the various approaches countries have to determining a fiscal residency can make this a complicated process. 

 

For example, Spain’s tax residency is on a calendar year basis, while other countries work by a date-to-date accordance. 

 

This can lead to temporary situations of double tax residence or double non-tax residence, or in other words, saving money or having to spend more than would be required. 

 

If dual non-tax residence can be taken advantage of, significant tax savings can be achieved that could be the difference between a player making a move abroad. 

 

Payments for agents

 

Another element to consider is the taxation applicable to payments to be made to agents. 

 

Clubs know the importance of keeping a player’s close advisory in favour, and if proper tax planning is not done, some jurisdictions may categorise payments to agents as part of a player’s salary. 

 

In such moments, commission made payable to the agent may double and could put a transfer at risk. 

 

Image rights

 

While all eyes are often on matters related to salary and signing-on fees during negotiations, the taxation of image rights is among the key factors players and agents need to take into account as they can cause lots of problems both on and off the pitch. 

 

For instance, while some countries accept that image rights of players can be exploited through companies, others can be very hostile to such approaches when it comes to taxation. 

 

Lionel Messi and Cristiano Ronaldo were subject to long, drawn out legal processes during their careers in Spain as a result of this, which eventually resulted in both being convicted of tax criminal offences. 

 

In conclusion, tax planning is of essence and it needs to take precedence when preparing for a transfer as it can be the difference between a player securing his dream move or missing out, while clubs need to ensure all aspects of employee taxation are complied with by a matter of law, in addition to the regulations leagues and federations stipulate.  

 

It is now commonplace for clubs and agents to seek professional help when it comes to taxation, and while the unpredictable nature of football can see players move at the 11th hour of Transfer Deadline Day, failure to plan when it comes to taxation is planning for failure. 

 

Manuel Alonso is a tax partner at international law firm Baker McKenzie. Its sporting division is a market leader specialising in contract negotiations, termination, buyout clauses, tax law, sponsorship and investment.

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