Before competing in the UEFA Champions League, European football clubs also compete to attract the best players. After the “Bosman judgment” abolished the limit of foreign players allowed in a team, in 1995, the share of foreign players in European football clubs increased significantly. With the high degree of cross-border mobility in Europe, taxes become a very important factor as players seek to maximize their after-tax income. Since income taxes differ across Europe, this can put teams from one country at a significant disadvantage when competing for talent with teams from other countries.
Football players, and especially those who are highly skilled and well paid, tend to choose countries with low personal income tax rates. Additionally, it is common for tax incentives or tax breaks for top foreign players to crowd out domestic players.
Nowadays, no European country offers specific tax breaks for football players, but this has not always been the case.
In 2004, Spain was one of the first European countries to offer tax relief to football players through the so-called ‘Beckham Law’, with superstar David Beckham being the first to benefit from the law. . Spain offers a special tax regime for non-residents whose Spanish income is taxed at a general rate of 24% and 19% in the case of EU residents. This income tax rate is particularly low compared to the highest tax rate in Spain, which varies between 45.5% in Madrid and 54% in the Valencian Community, where Villarreal Football Club is based. However, since 2015, the tax regime for non-residents is no longer applicable to professional footballers while it may still apply to other non-residents. Spain is not alone in excluding footballers. Portugal also offers tax breaks for non-residents; however, football players cannot benefit from it.
On the other hand, France, Italy and the Netherlands are the only countries that allow football players, among other taxpayers, to benefit from a tax regime favorable to expatriates. In these countries, part of the salary is exempt from tax. France and the Netherlands allow a 30% exemption of taxable income while Italy allows a 50% exemption.
Until 2007, Belgium also had an expatriate-friendly tax regime applicable to elite players. However, since 2007 the preferential tax regime has changed to a regime where a number of companies, including football clubs, can retain 80% of the withholding tax on wages as long as they use this amount training young players.
Football players respond to tax incentives (in the same way as all individuals) and many countries have tax policies in place to attract foreign football players and highly skilled workers. But if income tax rates need to be reduced to make a country attractive to foreigners, the tax rates may be too high in the first place. Moreover, as mentioned, this type of policy could crowd out national actors.
With regard to the general income tax regime, football clubs based in Turkey (40.8%), Switzerland (44.8%), the United Kingdom (45%), the region Madrid in Spain (45.5%), Italy (47.2%) and Germany (47.5%) has a competitive advantage over football clubs based in France (55.4%), Austria (55%), in the Valencian Community in Spain (54%), in Belgium (53.5%), in Portugal (53%), in Sweden (52.3%). percent) and the Netherlands (49.5 percent).
However, as mentioned, the Netherlands, Belgium and especially France are aware of their competitive disadvantage and have adapted their tax systems in order to offer a more competitive tax regime to their clubs. Italy too, although they are in a relatively good position, ranking 5andin the general income tax regime of countries/football clubs participating in the UEFA Champion League.
Tax breaks are not the only way football clubs try to attract players. In many countries, notably Spain, France and the United Kingdom, clubs use image rights to remunerate football players, allowing them to pay the rate of corporation tax which is generally lower than the highest personal income tax rate. In addition, in 2018, France approved a law allowing clubs to pay part of their players’ remuneration in the form of income from image rights. Thus, by reducing the social charges which constrain clubs and are extremely heavy in France, the French government has improved the competitiveness of French clubs.
Policies aimed at attracting the best football players are not without their advantages. When superstar Lionel Messi left football club Barcelona for Paris Saint-Germain last year, Spain not only lost a top football player, but also its biggest taxpayer. Messi’s tax payments were even higher than the corporation tax paid by most large companies in Spain and equal to the average contributions of 120,000 Spanish citizens combined.
When attracting the best football players, governments must carefully weigh the costs of tax incentives against the opportunities to implement broader tax reforms. A policy of attracting foreigners can be interesting, but if local actors do not also reap the benefits of the reforms, governments risk attracting foreigners while not making the country attractive for their own actors and the population in general. . It is also a general lesson for thinking about the impact of tax policy on inward investment versus support for domestic entrepreneurs. A more efficient income tax system is a better goal than focusing solely on incentives for football players to change tax residency.