Why Allowing the “Beckham Law” (Royal Decree 687/2005) to Expire Will Ruin World Soccer
The Sports Blawg with the Fordham Sports Law Forum
The international battle for supremacy among the many soccer leagues has found a new battlefield: tax law. Preferential tax laws entice top soccer payers by allowing them to pay lower taxes. Everyone knows lower taxes means more money in your pocket. However, as countries try to revive with the delicate economies by raising taxes, some may not be thinking about how this will impact their soccer teams and leagues.
Take Spain for instance. Spain passed the “Beckham Law” (Royal Decree 687/2005) in 2005 to attract wealthy foreigners, like David Beckham and other top footballers, with the promise of a lax tax burden. But now, this tax law is set to expire and create a tremendous tax hike on top footballers playing in Spain’s La Liga. Should Spain let this law expire? If the tax laws expire, talented players will leave Spain’s La Liga and the league will have a harder time attracting new talent. Arguably the greatest soccer player of his generation, former world player of the year, Nike poster boy, and top jersey seller Cristano Ronaldo has already hinted multiple times that if Spain allows the Beckham Law to expire, he will leave and return to the EPL. Understandably so, since his tax burden would jump from 24% to 52%.
If the talent level drops, Spain’s La Liga may not be as financially successful, something that Spain and La Liga can’t afford. The 2010-11 season saw revenue growth from nearly all the leagues except for Spain’s La Liga. Plus, Spain is already in the midst of a financial crisis and any further complications look to continue and actually expedite La Liga’s spiral down from the second best league in the world. In a country that has accepted a European Union buy out, it seems only prudent not to take drastic measures that will affect one of the few prosperous national symbols and generators of revenue for the cash strapped people of Spain.
If Spain needs any more reason to renew the Beckham law, they only need look to the situation playing out in France. France’s 2013 tax plans include imposing a 75% tax on any income above 1.25 million euros. Clubs and players lashed out after the French government, saying new tax plans would have a “disastrous effect” on domestic football. And we are already seeing the impact of this law with the jaw-dropping contract signed by Zlatan Ibrahimovic to play for Paris Saint-Germain. PSG, France’s premier team, needed to pay Zlatan over 1 million Euros a month to compensate for the higher taxes. This has to hurt PSG’s competitiveness in the long run. France has become an example of what the league should avid at all costs. Players are opting to leave the French league and the league’s reputation, along with its revenue, is on the decline.
It is possible that these changes won’t destroy the countries respective leagues. Maybe this is just part of a bigger trend to curb exorbitant player wages? Maybe England and other countries will follow suit? Unfortunately, that isn’t likely to be the case. England has permanently adapted their tax code to benefit top footballers. The UK tax system taxes income above 150,000 pounds at a rate of 50 percent, thereby if you make 450,000, the first 150,000 is taxed at the normal lower rates and 300,000 at 50 percent. So now, all EPL players just sign two contracts: The first is for their direct service on the pitch for 150,000 and the second is for the image rights of the player—the rights of the club to advertise and sell itself and other products using the player’s image. This is where the rest of the money goes, but because the money paid in the second contract isn’t directly to the player, but rather into a shell company set up by the player, there is a loophole that keeps the rate down. The loophole states that money paid into promotion companies and not the player directly, can only be taxed at 28 percent, not the 50 percent the player would be likely to face otherwise. Theo Walcott. Ashley Cole, Wayne Rooney, Gareth Bale, Gareth Barry, and Michael Owen have all done this. In the end, the players will follow the money, or lack of taxes.