Why the Premier League can’t keep up
Taxes. Nobody likes paying them, but without them we wouldn’t survive.
Drawing on the recent post by Darren in regards to the levels of US state taxes and the effect on player income [ “A Taxing Discussion”], I thought I would look at the tax rates and how they factor into soccer contracts on a worldwide scale.
The talk started with the recent Arsenal singing of Andrei Arshavin and him being upset about having the bulk of his wages taken by the current 40% upper level tax rate in England, after coming from paying only 13% in Russia. He even fired his agent as he was unimpressed with what he was able to deliver [ Arsenal Star Andrey Arshavin Sacks Agent Dennis Lachter]. News gets worse for those making over £150,000 a year as they will soon be paying 50% on their income.
Look at this in comparison to Spain. In an attempt to lure top CEOs to the nation, Spain passed a bill allowing the first five years of your higher tax rate to be cut to an attractive 24%, significantly lower than that charged by their English counterparts. Now look at where Kaka and Ronaldo have recently transferred to. That’s right, Spain. Ronaldo would have lost about £15 million over the life of his contract if he stayed in England. [ Premier League can’t compete with low taxes in Spain]
English club Manchester United was linked with player Karim Benzema, who ended up signing with Real Madrid. Could taxes have played a factor in that deal also?
Another great example is that of player Jermaine Pennant, who recently signed with Spanish team Real Zaragoza. Whilst still earning a fair amount, Jermaine is on the equivalent of £80,000 a week before tax, as his after tax wage is £40,000. His club is happy to foot the tax bill of £9,200 a week as it’s minimal [ Jermaine Pennant’s switch to Real Zaragoza earns him ‘£80,000 a week’]. Now picture him still playing in England. Assuming the close to £50,000 wage he is on, he would receive only £25,000 after tax, losing £15,000 a week on what he currently earns.
As previously mentioned, Russia has a low tax rate of 13%, so if you were a decent player who might be able to play at Championship level in England, would you consider a move to Russia for a better pay deal?
Spain is really the only threat to English football, as other major markets (France, Germany, Netherlands, Portugal) are all hovering around the 40-50% upper level tax bracket. [Source]
However it’s the minor leagues that could entice the lesser known players to countries such as the aforementioned Russia, Switzerland (13.2%) and Turkey (35%). Alread,y high profile players such as Harry Kewell and Milan Baros have made the switch to the Turkish League. Alternatively, players could play in the U.A.E. which doesn’t have any tax at all!
So how can English football stop the exodus and prevent Spain from taking all the quality players?
The most obvious way is to simply equal the net pay as to which is offered elsewhere. Players and Agents alike have caught on about the tax rates and are now using it to their advantage. Players are already asking for their contracts to include the amount they receive after taxes are taken into account.
As it is now easier (and common) for a player to transfer across the world, the inevitability will be that clubs will have to fork out more money.