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Footballers’ images - as valuable as they think?

Footballers’ images - as valuable as they think?

Posted on 21 August 2019

Since the global financial crisis there has been a dramatic shift in public attitudes towards the taxation of the rich and famous. This has resulted in various countries’ tax authorities taking an increasingly proactive approach to reviewing and challenging the commercial arrangements of wealthy organisations and individuals, particularly where they have a high profile.

In this climate, international footballers have frequently found themselves in the spotlight for the wrong reasons. The prosecutions of both Lionel Messi and Cristiano Ronaldo are just two examples of the criminal and PR consequences of failing to properly organise your tax affairs. The recent case of Hull City Tigers v HMRC shows that similar challenges may be in store for players in the English football leagues.

The Hull City Tigers case related to an image rights agreement between Hull City AFC and one of the Club’s players, Geovanni Gomez, that was in place between 2008 and 2010.

Image rights agreements in relation to football players have been a source of contention in a number of jurisdictions. Tax authorities have become increasingly concerned that they are, in reality, simply a creative means of both parties paying less tax. In this case, Gomez, a Brazilian football player, signed to the Club in July 2008. Four months later, the Club entered into a separate image rights agreement with an offshore company under which the Club made payments totalling £440,800, ostensibly in exchange for the right to exploit Gomez's image rights overseas. HMRC, however, took the view that in reality these agreements were part of Gomez's payment for his services as a footballer. Accordingly, in February 2013, HMRC issued determinations against the Club requiring payment of approximately £250,000 in unpaid income tax and national insurance contributions in respect of the sums paid under the image rights agreements.   

The Club appealed this determination to the First Tier Tax Tribunal (the "FTT"). However, in a decision in March of this year, the FTT dismissed the Club’s appeal and upheld the sums claimed by HMRC. In reaching its decision, the Tribunal held that it was not necessary for HMRC to show that the image rights agreement was a "sham" in order to challenge it. Instead, the FTT held, the burden of proof was on the taxpayer to show that, "viewed realistically", the image rights agreement was a genuine, separate, commercial arrangement, and not merely a part of Mr Gomez' remuneration.

The FTT held that the Club had not discharged this burden. In doing so, it relied on its findings that the Club had never sought a valuation of Gomez’s overseas image rights, that the club did not have the experience, resources or capacity to exploit the commercial opportunities associated with his overseas image rights and, crucially, that Gomez's image rights were never actually exploited by the Club. The Tribunal was particularly critical of the fact that there was no contemporaneous evidence of the negotiations around the image rights agreements, why the Club thought these rights were desirable, or how the Club reached the value agreed for those rights.

The case provides a cautionary tale for those who regularly agree commercial arrangements alongside traditional employment arrangements, which will be of relevance beyond image rights agreements in the sports world.

In particular, it highlights the dangers of failing to properly investigate the value of the assets or services being bargained for, or to record the process by which such arrangements are agreed. When entering into such arrangements the paying party must prioritise their commercial considerations. In the context of image rights agreements, this involves asking crucial questions such as whether the footballer has an image that will be valuable to the club, if that image is relevant to a particular fan demographic and the precise value of their image rights. They must also be careful to keep contemporaneous records of the negotiations, and the basis on which any agreements are reached.

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