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Monday, June 8, 2009

Loans to Keep Champagne Flowing in Premier League


LONDON - Premier League soccer clubs are looking at innovative ways to soften the impact of Britain's new higher tax rate so they can continue to attract multi-millionaire players to the world's richest league. Premier League players -- some of whom are reportedly considering leaving Britain before a new 50 percent tax rate for high earners is introduced next April -- want the clubs to pay their seven-figure salaries as interest-free loans.

The loans would attract a negligible levy.

"The loan idea is an option many Premier League clubs are looking at right now," Tony Antoniou, managing director of Pathos Sports Management, which looks after footballers across Europe, told Reuters.

"It will enable clubs to reduce the amount of tax their stars pay and help them attract more top players from overseas, which has made the Premier League the success it is today."

"I can see clubs putting this scheme in place sooner rather than later so they can keep their star players happy and get more big names in during the summer transfer window."

The proposed scheme would involve paying part of a player's wages as an interest-free loan, which HM Revenue & Customs would treat as a "benefit in kind", taxing only five percent of the amount borrowed.

If introduced, the scheme would mean Premier League footballers could avoid paying the high tax rate, which will increase from 40p to 50p in the pound for those earning more than 150,000 pounds ($240,700) per annum next April.

This means a one million pounds loan would make a footballer liable for half tax on just 50,000 pounds of that amount.

LOAN SCHEME

"The loan idea could work or it could fail but I don't see a failsafe way to get around the 50p tax rate," Patrick Stevens, a tax partner at accountancy firm Ernst & Young told Reuters.

"This could mean players will look at which other countries are most attractive to play in, in terms of the salary they can get and the tax they will pay."

"Many foreign footballers have their pay split between a typical salary and a payment for their image rights, which is not taxable if paid to an offshore company; perhaps this could happen more -- but we believe the tax authorities are looking into taxing image rights too."

If players were to abandon the Premier League they could join a club in Spain's Primera Liga -- considered to be the next best league in the world -- where they would pay a top tax rate of just 25 percent.

The top tax rate in France is 40 percent, while it amounts to 43 percent in Italy and in Germany stands at 45 percent.

In a bid to offset the tax hike, top Premier League clubs could simply raise players' salaries but this is not a viable option for many of the league's smaller clubs, according to accountant KPMG's head of private clients David Kilshaw.

"Salaries in the Premier League don't seem to have a cap on them and are themselves a competitive force," he said.

"I think some of the bigger clubs could just increase players' wages but the smaller clubs would probably suffer if they tried to keep up.

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TRUST FUNDS

"To get around this clubs could set up trust funds, which they pay into over time and then release to players at the end of their contracts," he added..

"They can also help players put money into film partnerships, which allow them to defer income tax and capital gains tax."

The average annual salary of a Premier League footballer is over one million pounds according to accountancy firm Deloitte. But some of the top earners earn up to four times as much.

Despite the other payment methods being considered by Premier League clubs, news of the higher tax rate is already causing some of English soccer's top players to demand pay increases to make up for its impact.

However, the loan scheme could stop them demanding pay rises to offset the impact of the higher tax rate which Andrey Arshavin, Arsenal's Russian forward, did last week.

Arshavin is renegotiating his 80,000 pounds-a-week salary after being "unpleasantly surprised" at his tax bills, which are just 13 percent in his native Russia, following his move to London from Zenit St Petersburg in January.

The disadvantages of being a high-earner in Britain could also make it harder for Premier League teams to attract thw world's top international talent such as AC Milan forward Kaka and Valencia striker David Villa to the Premier League.

Accountants at Deloitte on Thursday published a report showing the combined wage bill for the Premier League's 20 clubs had broken the one billion pounds barrier and that clubs' net debt was 3.1 billion pounds.

"The top Premier League clubs have a capacity to up their wage bill to offset rising taxes which the smaller clubs don't. If this happens the divide between the rich clubs and small clubs will widen further," said Ernst & Young's Stevens.

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( Rhys Jones / Reuters )

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