Taxman gives up on chasing down Olympic gold

Foreign athletes at London 2012 can keep all their earnings, though home talent must still pay

It’s a good thing that the British sporting public made the most of Usain Bolt’s Olympic victory in the 100 metres on Sunday because it may be some time before they see him again once the London 2012 Games close.

Indeed, Bolt has specifically avoided coming to the UK for years because of what is widely regarded as the Government’s "aggressive” approach to taxing visiting sportsmen and women.

He is not alone. As Ben Jones, of Eversheds, says: "Rafa Nadal is believed not to have played at Queen’s Club to avoid paying UK tax, and other big sporting names also consider avoiding British events — apart from the most high profile — in order not to be subject to our taxes.”

The International Olympic Committee (IOC) insisted that HMRC suspend its normal tax regime for those coming to Britain to compete as one of the conditions of awarding the Games of the 30th Olympiad to London. Jon Taylor, of Bird & Bird, says: "The power of the IOC means that it can demand anything it wants.”

As a result, explains Alison Cartin, of Berwin Leighton Paisner (BLP): "Payments to foreign competitors, participating in the London 2012 Olympic Games and Paralympics, will not be subject to UK tax provided that they fall within the terms of the special exemption. This includes payments under sponsorship or endorsement contracts.”

Unfortunately, these provisions do not apply to Jessica Ennis and other British competitors, but they will be extended, says Damian Bloom, of BLP, to the swaths of foreign Olympic officials, journalists and pundits who have converged on London from around the world this summer.

The rules are detailed but, in essence, HMRC created a tax-exempt Olympic season from the end of March through to the first week of November. During this period, Olympic-related work undertaken by those not resident in the UK but involved in the Games will be free of UK tax. This reflects the desire of the Olympic authorities to ensure that the world’s top sportspeople are not deterred from taking part by a hefty tax demand from the host nation.

Although there is no official winners’ purse, the prestige of Olympic victory is so powerful that everyone wants to be involved.

Moreover, the enhanced status of victory can add significantly to a medal winner’s earning power. That is why bonus payments associated with podium success through sponsorship contracts are also exempt from tax — provided that the contracts were in force before July 25 (Olympics) or August 29 (Paralympics).

While there may be a popular perception that the UK tax authorities are soft on successful foreigners, the reality for sportspeople (and indeed others who are classified as entertainers and performers) is quite the opposite. So much so, Bloom says, that "we may have a situation where people who have become big international stars because of the 2012 Games do not want to return here because of the tax they will be forced to pay”.

The normal UK position is that if a sportsperson comes to the UK to compete, HMRC wants a slice of what he or she earns here.

And that means not just the fee paid for performing — as at the athletics Diamond League — but also, on a proportionate basis, of any sponsorship deals that he or she may have. The landmark case, says Peter Jackson, of Taylor Wessing, was in 2006 when the House of Lords ruled that Andre Agassi had to pay tax arising out of his participation in Wimbledon on payments made to him by Nike and Head, even though neither he nor the two companies were based in the UK.

"There was no principle of territoriality here,” Jackson says. "The trigger for a tax liability was purely that Agassi had played tennis in this country.”

Although double taxation treaties exist with many countries, they are each different. And, Jones says, the Government does not usually have such treaties with the tax havens popular with the highest earners.

But the penny seems to have dropped in Whitehall that these taxation levels may be harming the UK more than it is the athletes. "If you want to have centres of sporting excellence then you need to be able to attract the top talent,” Bloom says. "If sporting stars come here to compete then they will be paying a high rate of tax — often significantly higher than elsewhere — and that is a big deterrent.”

Taylor says that the UK tax authorities have recently rejigged the way that they calculate the proportion of a performer’s time: they will tax by including training days in a way that reduces the tax take.

And the precedent set by the IOC in insisting on an exemption is now being taken up by other leading sporting organisers.

Hence, as Jackson says, similar exemptions will apply for the finals of the European Champions League, which England is hosting, and for the 2014 Commonwealth Games in Glasgow.

Meanwhile, those gold medals, so hard won, will stay intact. For once the taxman will not get his cut.