With this ESPN tidbit about how the new British tax laws might be hampering both Ryder Cup Teams, some of this intrigue (Tiger Woods) about will certain golfers participate in this upcoming October’s cup is starting to come clearer. Sergio Garcia has already told the press that he has boycotted European Tour events in the UK (other than The Open Championship) this year due to these laws. While I don’t think they will have too much impact on the journeyman golfer (most of the PGA/Euro Tour) it will have a substantial effect on the stars.
Taxation on Direct Earnings
Ok, this isn’t a new problem. If you win money at an event in a foreign country you are generally subject to paying taxes in that country on those earnings. Unless of course your home country already has a tax treaty in place with the country that you won money in. For example. You are a US golfer who wins an event in Spain. Do you pay Spanish taxes on those winnings (in Euros), then have to pay income tax (Federal only if you live in FL, NV, NH, or AZ) on them in the US since they are part of your yearly earnings? Well, the short answer is……No…..but only after you apply (and get approved) for the Foreign Tax Credit through the IRS. Why? Because the US has not ratified a tax treaty with Spain addressing this issue. (Investments? Yes. Personal taxes…no) Like I said, this isn’t a new issue, but it will be more and more of a problem especially as golf (read: LPGA) is more globalized and more US players play overseas.
Taxation on “Other” Earnings
This is the problem. Before this new British Tax law passed, other earnings (endorsements, licenses, Scratch Golf esque performance based incentives, etc) were taxed, but only for the duration of the event. For example, if Titleist pays you $365,000 a year ($1000/day) to play Titleist/FJ equipment, you would have paid 50% of $7000 ($365,000/365 x 7days) or $3500 tax to the “crown” as a surcharge to be able to win money at the Open Championship or any other event. Not a big deal. Now, the multiplier is not based on the length of the event, but the number of events you participate in yearly. So, using the same example, if you play 25 events per year, you are now paying $5,300 ($365,000/25 x 50%). Doesn’t sound like a lot of difference does it? Ok. You are now Tiger Woods. You earned almost $100 million in endorsements last year. Now redo the math. That’s a lot of lettuce. So, playing in the Ryder Cup (which doesn’t give out prize money) will cost these players money. (Obviously some more than others) When it come to attracting stars, Tiger, Phil, Sergio, Ricky Flower, et al, who make more off the course than on, this can be an obstacle.
Implications moving forward:
England has already lost the 2010 Champions’ Cup due to this new law. FIFA awarded them the 2011 Cup final only after they negotiated a special tax exemption. The 2012 London Olympics has a similar arrangement in place. There has already been a backlash by the British sports leagues and authorities saying that the new law deters the best of the best from competing (like Usain Bolt) in British events. While this law does not really prohibit the lesser know professional (who probably isn’t earning that much in monetary endorsements), I don’t think the fields for future Open Championships will morph into something like the field for the Turning Stone Championship. Time will tell. Just another thing to pontificate on before October, and perhaps beyond.
For those of you who want some extra credit, here you go:
http://www.hmrc.gov.uk/index.htm
http://www.hmrc.gov.uk/manuals/dtmanual/DT1745.htm
http://www.hmrc.gov.uk/manuals/bimmanual/BIM50606.htm
Enjoy.
