By Athena Constantinou, Managing Director, APC Sports Consulting, Nicosia, Cyprus
At first sight, the decision on 22 March 2019 by the UK First-tier Tax Tribunal in the Geovanni Gomez case – Hull City AFC (Tigers) Limited v HMRC  UKFTT 227 – would seem to strike a fatal blow against image rights tax mitigation schemes in football.
The details and a review of this case will be found in an article by Kevin Offer in the June 2019 issue of ‘Global Sports Law and Taxation Reports’(www.gsltr.com).
Briefly, Hull City Association Football Club entered into an Image Rights Agreement with an offshore company to which one of its players, Geovanni Gomez, had assigned his image rights. The Agreement covered non-UK image rights only. The UK rights were covered by the player’s contract with the club.
The payments made by the Club to the offshore company in respect of the image rights of Geovanni amounted to £440,800.
The Tribunal held that these payments were part of the player’s earnings from his employment with the Club, based on the legal principle of substance over form. Under this principle, a realistic view of the payments, as opposed to relying on the legal form in which they were expressed to be made, as evidenced by the contracts entered into between the parties, is applied. Thus, the club should have accounted for income tax and national insurance on the payments.
In other words, the ruling established almost twenty years ago in the UK case of Sports Club Plc v HM Inspector of Taxes  STC (SCD) 443, namely, that payments under an agreement for the use of the image rights of a professional football player can, in principle, be treated separately, for tax purposes, from the playing activities for which the player is employed by a club, was not applicable to the particular facts and circumstances of the Geovanni case. In other words, the Geovanni case was decided on it own particular facts and merits and did not overrule the Sports Club case!
The Tribunal held that the payment arrangements in the Geovanni case with the offshore company were a sham and had no substance to them and, therefore, could not escape being taxed as income.
This is the core issue when structuring image rights deals from a tax sheltering point of view: there must be a real and commercial basis to them and they must make sense financially. If these criteria are not satisfied, then the payments for the rights will be treated as income and taxed as such.
Also, the player must also have a certain celebrity status in order to justify actually having image rights to commercialise and financially exploit in the first place. Otherwise, the payments will again be a sham and not pass close scrutiny by Tax Authorities, who seem to have declared war on image rights deals – not least, HMRC, the UK Tax Authority.
The image rights must actually be exploited and used by the player’s club. In other words, the club must, in fact, be paying for something and getting value in return for the use of the player’s image rights.
Again, the value placed on the image rights being exploited must be a defensible one and in proportion to the amount paid for the playing rights. This is where an independent third-party professional valuation of the image rights concerned comes into play.
We, at APC Sports Consulting, can provide such a valuation, based on a reliable and realistic methodology. See ‘www.sportsimagerightsexpert.com’ for details of the ‘APC Brand Evaluator’.
There also need to be separate negotiations and separate documentation in respect of the playing rights and the image rights at all times, which should never be dealt with in the same document.
The Geovanni case must serve as an object lesson on how not to structure image rights arrangements and the detailed critique of them by the Tribunal will repay careful study to avoid the pitfalls identified. Just setting up an offshore image rights company is not enough to avoid tax.
In particular, it should have real substance and be managed accordingly.
Tax sheltering arrangements of sports image rights deals are, by no means, dead, but can be set up and managed successfully, if scrupulous attention is paid to the above considerations and the pitfalls exposed in the Geovanni case are avoided, despite the fact that Tax Authorities will do their damnedest to strike them down at every opportunity!
Athena Constantinou may be contacted by e-mail at ‘firstname.lastname@example.org’