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Taxing Away the Stars

From today's FT.com:

Britain is driving away international sports stars and missing opportunities to host lucrative sporting events because of a tax practice that nets the exchequer a paltry £7m a year, a consortium of sports bodies has warned the government.

The Inland Revenue’s approach to taxing the money foreign athletes earn from endorsements has come under fire in recent weeks after the sprinter Usain Bolt said he would not be participating in the Aviva London Grand Prix, an athletics competition to be held at Crystal Palace next weekend.

Bolt, who holds the world records for the 100m and 200m events, would have had to forfeit more money to the Revenue for the few days he spent in London than he could have earned in prize winnings at the tournament.

A policy change in 1999 made endorsement income taxable, based on the proportion of days spent competing in the U.K.  This may be a bit presumptuous -- it seems unlikely that Bolt's endorsement income will increase in proportion to this weekend's track meet.  I may also be counterproductive in a world where only a few countries -- including the U.S. -- employ this policy.   But from a political economy perspective, the pattern of exemptions looks predicable:

The government has granted an exception to the law for athletes competing in the 2012 London Olympics. An exemption has also been given to footballers playing Champions League games in the UK – although the levy has not generally been applied to team sports.

Pete Hackleton, co-author of the RSM report, said: “Exemptions have only been given to the highest profile events, whereas in many ways it’s the lesser events held in the UK that would benefit most from exemptions.”