Specific Tax Exemption Regulations for Major Sports Events: Example of London Olympic and Paralympic Games

By Yazicioglu, Alara E. | The International Sports Law Journal, January-April 2012 | Go to article overview

Specific Tax Exemption Regulations for Major Sports Events: Example of London Olympic and Paralympic Games


Yazicioglu, Alara E., The International Sports Law Journal


I. Introduction

Major sports events are not only about gold medals, champions, world records and unforgettable sporting competition. They are also about enormous numbers of contracts concluded between service providers, substantial tourism income, broadcasting rights that generate large amounts of money and other important sources of revenue like sponsoring fees. In other words, major sports events are also a considerable source of income. For this reason, the taxation of sports events is of the utmost importance.

Taxation of international sports events has always been an important and problematic issue of international tax law. Participants to those events come from different jurisdictions. Application of double taxation treaties (hereinafter DTT) can prevent excessive taxation to a certain extent. However, even if countries take particular care of having a large network of DTT, host country may not have concluded such agreement with all participant States. Therefore, especially for a major sports event, it is inevitable to be confronted with situations where there are no specific international rules governing the taxation of the sportsperson / entity participating to the event.

Moreover, even if a DTT exists between two States, it is not always sufficient to eliminate double taxation or heavy tax burden. This is especially the case for sportspersons (1). In accordance with Article 17 of the OECD Model Tax Convention on Income and on Capital (hereinafter OECD Model) (2), each country can tax income of a sportsperson deriving directly or indirectly from a sports performance that takes place on its territory. In most cases, application of this rule results in an excessive tax burden (3), as Contracting States tend to interpret "income indirectly related" to a performance quite extensively. Some countries, especially the United Kingdom, are known to tax sportspersons rather heavily. In certain cases, taxation can even discourage sportspersons from competing in a country. A recent example is Usain Bolt who declared that he refuses to participate in tournaments, except the Olympic Games, taking place in the United Kingdom, because of the tax burden.

Taxation may also represent a problem for organising associations, service providers and other participating entities. With regards to corporate tax, in most cases, a permanent establishment is created in the Source State and income generated by it is taxed. (4) Depending on the case and the DTT -if any- concluded, this taxation can constitute a considerable charge.

Another important aspect is the value-added tax (hereinafter VAT). The foreign entities need to take several measures in accordance with the domestic law of the Host State. Finally, custom duties may also form an important expenditure especially for import of sporting equipment. It is important to underline that, taxes covered by a DTT is limited -in general income and capital tax-. Therefore, DTTs governing VAT or custom duties are very rare.

Therefore, the only way to prevent double taxation and / or give tax relief to a certain extent is to make sure that the domestic law of the State hosting the event provides for tax exemptions. For this reason, specific tax exemptions are more and more frequently a part of bidding contracts. When a State officially becomes the Host State, it takes necessary steps to fulfil this obligation. The measures taken can vary from country to country. In most cases, a specific Act or Amendment will be adopted.

Exemption regulations are mostly similar. However, as they depend on the domestic law of host States, they have some discrepancies. In this contribution, tax exemptions put in place for the London Olympic and Paralympic Games will be examined.

II. Obligations imposed by the Host City Contract

During the bidding procedure or when the final decision on the host city is taken, a contract is signed between the international sports federation organising the tournament and the Host State. …

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