Spain to win EURO 2012 for tax reasons if the boycotted final is moved to Poland
by Karolina Tetłak
In view of the recent discussion regarding the boycott of the European Football Championship matches played in Ukraine, a proposal has been made to move the final match of the tournament to one of the Polish stadiums. Regardless of the political dimension of such a decision, it would have a considerable tax consequence for the players. If the final were relocated to Poland and won by Spain, its players would pay income tax on their winnings neither in Poland nor in Spain. The total lack of tax on premiums from UEFA would apply exclusively to this one national team and only if the final takes place in the territory of Poland.
The tax treatment of income earned by members of national teams participating in UEFA EURO 2012 is regulated by the domestic law of the host countries (Poland and Ukraine) and residence countries of the players and by double tax treaties. As required by UEFA, Poland and Ukraine guaranteed a tax exemption for income earned by foreign players in connection with the tournament. To satisfy this requirement, special legislative measures had to be introduced because contrary to the expectations of UEFA, the general laws of Poland and Ukraine provide a withholding tax on foreign sportsmen. Pursuant to a decree from 28 January 2011, the Polish Minister of Finance refrained from collecting the 20% tax that would otherwise be due on income earned in Poland by non-resident players in connection with EURO 2012. Ukraine changed its Tax Code on the basis of the law from 21 April 2011 by exempting the payments for services connected with the tournament from the 30% withholding tax. The special tax regime adopted for EURO 2012 ensures that the members of foreign national teams will not pay tax in Poland and Ukraine on their tournament-related income. The exemption will cover premiums paid out to sportsmen from performance bonuses received by participating football associations for each match won. The winning bonus for the final will amount to € 7,5 million.
The national laws of the residence countries of the players generally impose a tax on foreign income but such laws are subject to the application of the relevant double tax treaties. Therefore, the actual tax implications of earning income from EURO 2012 will also depend on the methods of eliminating double taxation under the tax treaties concluded by Poland and Ukraine with the residence countries of the players. The following sixteen states have qualified for the group stages of the tournament: both host countries, Denmark, Greece, Portugal, England, Ireland, Russia, Croatia, France, Italy, Spain, Czech Republic, Germany, Holland, Sweden. Poland and Ukraine have double tax treaties with all countries represented in the tournament. It should be noted that players representing a particular state are not always resident in that state for tax purposes. Because of the primacy of Germany, Italy, Spain and the United Kingdom in European football, it is often the case that players of other nationalities are members of sports clubs in these leading states. Such players are tax residents of these states and as such are covered by the tax treaties concluded by the residence country rather than by the country of the national team to which they belong for the EURO 2012 purposes.
As a rule, tax treaties concluded by Poland and Ukraine contain provisions similar to Article 17 of the OECD Model Tax Convention. Article 17 applies to athletes and is an exception from the general rules on taxation of business profits (Article 7 of the OECD Model) and employment income (Article 15 of the OECD Model). It assigns a full taxing right with respect to income earned by sportsmen to the country of performance. Pursuant to Article 17, Poland and Ukraine have the right to collect tax on income connected with EURO 2012 earned by players resident in tax treaty countries. However, as already mentioned, Poland and Ukraine have unilaterally given up their taxing right with regard to the tournament-related income. Nonetheless, the residence countries of the players still have to take the relevant double tax treaties in consideration. Depending on the provisions of the applicable treaty, the residence country must use the tax credit or exemption method for the avoidance of double taxation. The credit method requires the residence country to sum up the domestic and foreign income of the taxpayer and calculate tax in accordance with domestic tax rules and rates. The tax is then reduced by the amount of the tax withheld at source. If there is no withholding tax in the source country, the credit method does not influence the tax assessment in the country of residence. The taxpayer is taxed in full on his foreign income and no foreign tax is available to set-off against the domestic tax. Almost all double tax treaties concluded by Poland and Ukraine with the countries participating in EURO 2012 apply the credit method to income covered by Article 17. It means that the players will be able to avoid the tax in their countries of residence only if these states will unilaterally offer them a tax exemption. However, professional athletes generally do not enjoy such preferences in European countries. As a result, the players participating in EURO 2012 will pay tax on income earned in Poland and Ukraine in their residence countries, without the possibility to credit the source tax because of the lack of such tax in Poland and Ukraine.
Different tax implications follow from tax treaties applying the exemption method. Under this method, the residence country exempts the income earned in the country of performance from domestic tax. The exemption with progression allows the country of residence to take foreign income into consideration for the purpose of establishing the tax rate applicable to domestic income. Such a mechanism may be of relevance if the domestic law of the residence country applies a progressive tax and the taxpayer moves up the tax scale when foreign income is added up to domestic income. In such a case, the domestic income may be taxed at a higer rate whereas the foreign income is tax free. If the source country offers a tax exemption and the applicable tax treaty provides the exemption method, the taxpayer will enjoy double non-taxation of foreign income.
The exemption with progression covering Article 17 income is set forth in only one of the double tax treaties applicable for the relationships between Poland and Ukraine and the countries participating in EURO 2012. Namely, Poland has the exemption method in the treaty with Spain. Unlike the treaty Spain-Ukraine which contains the credit method, the exemption under the treaty with Poland offers Spanish players a considerable tax advantage. Spain will play its group matches in Gdansk and thus any income attributable to such matches (€ 1 million for a win and € 0,5 million for a draw) will be tax free in both Poland and Spain. If Spain reaches the quarter-final, they will play in Ukraine, but after that, one of the semi-finals will take place in Poland again, bringing the Spanish team € 3 million tax free in case they win. The final match planned to be held in the Olympia stadium in Kiev does not offer any additional tax incentive for the Spanish players. If they win in Kiev, the Spanish team will have to pay tax in their country of residence, just as any other team participating in the tournament. However, if the final were to be moved to Poland and Spain entered the final, the Spanish-resident footballers would avoid taxation on their winnings in both countries. Double non-taxation would potentially also benefit Spanish residents playing in other national teams. Depending on the results of the final match played in Poland, the game would bring Spanish residents € 7,5 million (for the winners) or € 4,5 million (for runners-up) tax free. The sum would be divided among the members of the national team and the national football association. The progression in the country of residence would not be relevant in practice because high earnings put the players in the highest income tax brackets anyway. Therefore, Spain, which is going to defend its European Champion title won in 2008, has a substantial incentive to win the tournament in 2012 – preferably moved to Warsaw.
 LL.M. (Warsaw University).