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Professional footballers and the morality of tax avoidance

    In Great Britain, celebrity tax avoidance is back in the news again. The most recent allegation came Thursday against retired sports star and current announcer Gary Lineker, whom the Daily Mail branded a “holier than thou hypocrite” for speaking up on political issues while engaging in tax avoidance.

    In recent months, the government has been consumed with another form of tax avoidance, investigating professional footballers (or pro soccer players as they are called in the U.S.) over offshore “image rights” payments. So serious is this form of tax avoidance that the chief executive of tax inspectors with Her Majesty’s Revenue & Customs (HMRC) recently described it as “the most significant risk in football,” with 43 players and 12 clubs under investigation.

    It has even spawned a new word: “netto” – not the discount supermarket chain but the footballers’ focus on their after-tax, or net, income.

    How does this work?

    For some of the top players, instead of just being paid for playing football there are instead two payments; a salary for playing football, plus an “image rights” payment when photographs or videos of the players are used in advertisements, branding, and other marketing materials.

    The footballing salary is paid to the players and is taxable in the usual way. But several players have transferred the rights to exploit their image to a company, so that the image rights payment becomes the income of the company rather than of the player. And if that company is not based in the UK, the UK government will have no right to tax that income.

    Is this illegal? Almost certainly not; intellectual property is a vital part of the modern economy and payments for image rights are perfectly legitimate, and genuinely offshore companies are not taxable here.

    Obviously the amount of the payment, and the split between the taxable footballing salary and the “image right” payment, needs to be accurate. As one industry expert, Chris Belcher of law firm Mills & Reeve, commented, you can’t “make image rights payments for players who … could walk down the street and not be recognized.”

    Even if these structures are legal, are they “morally wrong,” as former British Prime Minister David Cameron described comedian Jimmy Carr’s tax planning?

    But although the tax inspectors might challenge the level of image rights payments, even they seem to accept that the general principle is legitimate. That is why their chief executive suggested that the Treasury “review” tax law, with a view to changing the law to stop tax avoidance in future.

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    However even if these structures are legal, are they “morally wrong,” as former British Prime Minister David Cameron described comedian Jimmy Carr’s tax planning?

    Despite Cameron’s condemnation, it is difficult to say that there is anything wrong with the principle of splitting footballers’ payments between sports salary and image rights. Advertising is different to playing football, and separating the two payments merely reflects this underlying reality. Arguably, it would be less correct to treat them the same.

    Nor do these payments escape tax forever. Even if the “image rights” company is tax-free by being based in a low-tax offshore jurisdiction, eventually the footballer will want to get the money out of the company to spend it. At that point, the company will have to pay it to him as a taxable dividend.

    The benefit of the “image rights” structure is not in escaping tax altogether but in postponing it. And that brings into play another aspect of our tax system – that it is an annual tax with progressive rates. The higher your income is this year, the higher a rate of tax you pay this year.

    By looking at annual rather than lifetime income, the tax system can be unfair to people with erratic or variable income. Top footballers will pay the top 45 percent tax, but most will only earn at that level for a few years. If their income were averaged over an ordinary working life, many would be in a lower bracket.

    That is why footballers and entertainers use this type of tax planning scheme; if they delay taking their income out of the image rights company until their playing career has finished, it might be taxed at a lower rate. Arguably that averaging of income is fairer than the annual system imposed by the tax system.

    But even on a wider view, is this sort of tax planning really “morally wrong”? In my experience, the more you understand our tax system, the more difficult it is to argue that legal tax avoidance is immoral.

    We have a very complex tax system in which different types of income are taxed differently ways, at different rates, at different times, on different amounts. Indeed, some types of income are not taxed at all. Can it really be immoral if I change things so that I genuinely have a type of income that is taxed at a lower rate than the one I previously had?

    If I deliberately buy a car with lower emissions to reduce my annual tax bill, is that immoral?

    As an example, if a top rate taxpayer has money in a savings account at the bank, the interest he receives on it will be taxed at 45 percent. However if he puts the money into an Individual Savings Account (ISA), a special type of tax-free savings account created by the government, the interest will be exempt from tax. That tax-free ISA could, in all other respects, be just the same as the taxable savings account – with the same bank, paying the same rate of interest, on the same terms for taking money out – but changing the nature of the account changes the tax due.

    Is that tax avoidance? Yes – the money has been moved from one type of bank account to another simply to escape tax. Is it immoral to take advantage of an opportunity offered to us by the government? It is difficult to see why.

    Similarly, the tax paid by car drivers varies depending on the car’s emissions and fuel type. If I deliberately buy a car with lower emissions to reduce my annual tax bill, is that immoral?

    But if the ISA and the low-emissions car are not immoral, how can the footballer’s image rights company be immoral? It is a more complex structure, but only because the footballers’ finances are more complex. It is less common than an ISA, but only because few people are in the footballers’ position of having a high income for just a few years in their youth.

    The tax avoidance is not based on hiding income; tax collectors know exactly what payments are being made to these image rights companies. Nor is it based on pretending that the income is something it is not; the payments for lending your face to advertising is genuinely different to the salary paid for playing football.

    The tax system is highly complex, because of deliberate decisions by the government over decades. In addition to the different types of income we have, our tax liability can depend on our level of income, our personal circumstances, what investments we hold, and what we purchase with our income.

    With all these variables, it is impossible to say that there is any general obligation to pay a certain amount of tax. The tax system is entirely a creation of statute; a system based on general morality could not have come up with anything like its complexities, variations and exemptions. Therefore, the only true guide to how much tax to pay is the law, as set down by Parliament and interpreted by the courts.

    To argue that legal tax planning is immoral, especially for a politician to do so as David Cameron did, is to subvert the constitution, to usurp the function of the legislature and the courts.

    That is not to say that we can be selfish and keep our money to ourselves. What we do with our money, and our time and other talents, is an area where morality and the obligations of charity and society play an important role. But so long as we pay the amount of tax that is legally due, the best use of our remaining income is not necessarily to give it to the government.

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    Richard Teather is a senior lecturer in tax law at Bournemouth University. His personal website is