With the adrenaline pumping, tax may be the last thing on players' and clubs’ minds at the World Cup 2018, but Michel Collet, tax partner at CMS France explains how negotiating the use of athletes’ image rights throws some curve balls.
Up until a new French law which was adopted in 2017 [i], the employment contract with a club and the deriving salary covered the activity performed on the football field and use of the player’s image by the club. With the reform, the use of the image rights by the employer-club may give rise to distinct image rights licensing agreement (“IRL”) allowing the club to save the employer’s 40% social tax on royalty formerly due on salary. The aim of the reform is clearly to allow French clubs to be more in line with their opponents in Europe who are subject to lower employment tax burdens.
A decree for an actual application of the reform is still expected. It should bring guidelines and set boundaries such as a cap for the royalty amount.
The employment contract should remunerate the activity of the player or the coach when their physical presence is required (games and training sessions mainly) whereas IRL should govern the use of the player’s image, voice or name for which their physical presence is not necessary. Image rights benefitting the club at events where the player is on the field are likely to remain covered by the employment contract such as live broadcasts of games.
The personal image of the sportsman by the club may be both used separately or collectively (a minimum of five players is required). Use of the image rights in a collective context by the club is currently covered by the employment contract. Further legislative amendments would be necessary for shifting to the IRL. Royalties must be assessed exclusively on the revenue generated by image rights. The expected decree should list the types of endorsements/commercial income derived by the club generated through the exploitation of the player’s image.
However, clubs should look carefully the actual extent of the savings especially with international players.
For “Ligue 1” players/coaches having negotiated an after taxes compensation from the club, the question is as to whether the club would include the remuneration of the use image rights into the compensation package. Star players already negotiate the use of their image rights with sponsors on an after taxes basis. Therefore, it is likely that international players claim an after tax figure or range on the image rights component as well. This anticipated evolution should not go without complications if players/coaches have assigned their rights to a controlled image rights company (CIRC). The actual calculation of the effective tax burden might be complex due to anti-abuse mechanisms resulting in reporting to French tax authorities, the CIRC earnings for increased taxation purposes. Also, the personal income tax allowance from 30% to 50% granted to impatriates for the first 8 years of residence in France is not applicable to the royalty (but only on salary). Therefore, clubs should weigh carefully , for each case, the extent of their employer’s social tax savings with the extra cost deriving from the increased player/coach income tax (as compared to a salary) to be borne.
[i] Law 2017-261of March 1st, 2017 aiming at preserving the ethics of sport, improving the regulation and transparency of professional sport and increasing the competitiveness of clubs.