Proposed FIFA regulations for agents: player pays the agent - Tax implications?

#footballandtax #FIFA #clientpays #agentsfees

Monday, 20 January 2020 - FIFA considered its’ current Agents Regulations to be no longer fit for purpose. This has led the Task Force within FIFA to propose a number of principles relating to player representation and remuneration of agents. One of the proposed measures includes the obligation for the agent to be paid directly by the player. The introduction of this so called ‘client pays’ – principle would have substantial impact on the tax position of players and clubs.

Background

Over the past few years, FIFA has raised fundamental concerns regarding the current transfer system:

The market is deemed to be mostly speculation-driven;
Agents fees are skyrocketing;
Agents are often conflicted when working for both player and clubs on the same transaction; and
The existing FIFA Regulation on Working with Intermediaries have been poorly adopted at national level.

On 26 October 2018 the FIFA council already approved the so-called “First Reform Package” containing measures addressing the licensing system for agents, FIFA clearing house, etc. FIFA Stakeholders Committee has taken it a step further by agreeing on 25 September 2019 on a number of principles relating to representation and remuneration.

Proposed measures on representation and remuneration

FIFA Stakeholders Committee is looking to introduce a ban on dual or multiple representation, in an attempt to get rid of the conflicts of interests on player transactions. Agents would only be allowed to represent one party on a deal, be it either the player, the selling or the buying club. As an exception, only one scenario of dual representation can further exist, that is where an agent represents both the player and the buying club on the same deal.

“FIFA Stakeholders Committee is looking to introduce a ban on dual or multiple representation, in an attempt to get rid of the conflicts of interests on player transactions.”

As to agent remuneration, one of the most ground-breaking and controversial proposals consisted of the introduction of a mandatory cap on agent commissions (10% of the transfer fee for agents of releasing clubs, 3% of the player’s remuneration for player agents, 3% of the player’s remuneration for agents of engaging clubs and 6% of player’s remuneration for agents exceptionally still acting for both player as engaging club).

It is most remarkable that these measures would be accompanied by the introduction of a so-called ‘player pays principle’. Where an agent acts for a player on transaction, the commission would now to be paid by the player himself, and no longer by a club ‘on behalf of’ the player.

“Where an agent acts for a player on a transaction, the commission would now to be paid by the player himself, and no longer by the club ‘on behalf of’ the player.”

Player pays – tax and financial implications

It goes without saying that the shift in who pays for the services of the agent has an important impact on the tax and financial position of both players and clubs.

Impact on players

Today it is common for clubs to pay the agent’s fees on behalf of the player. To the extent that the fees remunerate services provided by the agents in benefit of the player, the club’s payment of the agent’s fee on behalf of the player can result in a corresponding taxable benefit in kind in the hands of the player. In the event where players are to pay their own agent, there will no longer be a taxable benefit in kind.

Main question that arises from an income tax perspective is whether the agent’s fee paid by the player can qualify as a tax deductible professional expense for income tax purposes in the hands of the player.

“Main question that arises from an income tax perspective is whether the agent’s fee paid by the player can qualify as a tax deductible professional expense for income tax purposes in the hands of the player.”

In tax jurisdictions providing in a net-basis taxation, i.e. allowing deductibility of professional expenses (such as Belgium), there will be no adverse income tax consequences. Some jurisdictions however are characterized by gross-basis taxation (i.e. such as UK), resulting in non-deductibility. In such instances the player would be obliged to negotiate a corresponding grossed up salary increase, allowing him to pay the agent’s fee.

“Also to keep in mind is the VAT cost linked to the agent’s fees paid.”

Also to keep in mind is the VAT cost linked to the agent’s fees paid. In their capacity as employee, players are not VAT taxable persons and will therefore not be able to recover VAT due on agent’s fees. The final VAT-cost will thus be pushed down in the chain towards the players, increasing the economic cost of agent’s fees with e.g. 21% (for Belgium).

Impact on clubs

From an income tax perspective, the life of the clubs is expected to made easier. As no benefit in kind can arise in the hands of the player, clubs will no longer be facing potential withholding tax and social security issues upon the benefit granted.

Also VAT-wise we expect less discussions with the authorities. At present in a number of European jurisdictions (Netherlands, Spain, etc.) the tax authorities disallow recoverability of the VAT upon the agent’s fee paid by the club on behalf of the player. In the event where the agent’s fee is to be paid by the player, VAT cost will be borne by the player and clubs will no longer be facing discussions.

Financially however, the introduction of a player pays – principle is expected to increase the total club cost, as in jurisdictions disallowing deductibility of expenses players will try to negotiate a grossed up salary increase in order to compensate the salary loss.

Way forward

“players and clubs will be required to (pro)actively evaluate and follow-up on their tax position prior and during transactions.”

Should FIFA council decide to approve the abovementioned FIFA Stakeholders Committee’s proposals, players and clubs will be required to (pro)actively evaluate and follow-up on their tax position prior and during transactions. With its broad experience and industry specific expertise in advising numerous football players on their Belgian and international tax position Atfield is well placed to assist.

If you have questions regarding this matter, please contact

Daan Buylaert (This email address is being protected from spambots. You need JavaScript enabled to view it.)

Pieter Debaene (This email address is being protected from spambots. You need JavaScript enabled to view it.)