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How soccer clubs, players and advisers play the tax game

Take Manchester City and the French player Gael Clichy, recruited by the club in 2011 for more than 4 million pounds ($5.2 million) a year. Man City recorded that soccer agent Darren Dein represented it in the negotiations.

Yet British press reports identified Dein as Clichy’s agent starting in 2010. And in two emails to officials at a European club in 2013, Dein said he acted for Clichy.

Who Dein represented became the subject of inquiry by UK tax inspectors. It is not the only instance to attract the attention of Her Majesty’s Revenue and Customs (HMRC).

An examination of thousands of documents relating to some of the world’s richest soccer clubs shows how clubs and players have repeatedly clashed with the tax authority over the role and pay of agents. At stake are hundreds of millions of pounds in tax revenue.

The “Football Leaks” documents, which include emails and contracts, were obtained by the German publication Der Spiegel and reviewed by Reuters in partnership with European Investigative Collaborations, a consortium of international media.

Agents typically take a cut of at least five percent of a player’s wage for negotiating on the player’s behalf. In many cases, the club pays, treating this sum as part of the player’s overall remuneration package. Under UK law, this is a taxable “benefit in kind” to the player. The player becomes liable for income tax and sales tax, and the club becomes liable for social security payments. If the player has negotiated a salary net of tax, the club ends up paying all of it.

But if the parties can show that the agent worked for the club, not the player, none of these taxes are due and the agent’s fee is treated as a regular business expense. In such cases, clubs benefit, and the tax authorities are the losers.

In the instance of Man City and Dein, tax inspectors challenged the club’s account of Dein’s role in negotiating that 2011 contract with Clichy, the documents show.

In 2013, the tax authority wrote to Man City about a 1.2 million pound payment it made to Dein in 2011 and asked why the club hadn’t reported a “benefit” to Clichy. It noted that “all the information in the public domain shows that Dein is the player’s agent.” In November 2015, after a meeting with the club, the tax authority wrote, “As stated during our meeting, we do not accept that Darren Dein doesn’t act for the player.”

Later the same month, Man City’s head of finance, Andrew Widdowson, acknowledged in a letter to the tax authority that while Man City had paid Dein “to influence the player into joining us” in 2011, the club also accepted that “as you point out, Darren Dein is the player’s agent and with that in mind we accept that a proportion of the fee should be apportioned as Dein acting for the player.”

Man City sought to reach a deal with HMRC over the unpaid tax, exchanges between the club and the tax authority show. Reuters was unable to determine the outcome. Based on the sum involved and the tax rate at the time, the total bill was likely to have been at least one million pounds, if Dein was deemed to have represented Clichy alone, Reuters has calculated.

Man City said it would not comment on “out of context materials purported to have been hacked or stolen from City Football Group and Manchester City personnel and associated people. The attempt to damage the Club’s reputation is organised and clear.”

A law firm representing Dein and Clichy declined to answer questions about their relationship.

The tax authority said it would not comment on individual cases, but added, “HMRC works closely with football clubs to ensure payments made to their agents during the renegotiation of a contract or club transfer are taxed correctly. We actively challenge any payments we consider not to be realistic and ask for evidence to prove legitimacy of any arrangement.”

In recent years, the UK tax authority has increased its scrutiny of clubs, including those in the world’s richest soccer league, the English Premier League. As of November 2018, the tax authority was investigating 171 players, 44 clubs and 31 agents about agents’ fees and other tax issues and had recouped 332 million pounds, it said, without naming the agents, clubs or players concerned.

But in the documents examined by Reuters, the tax authority didn’t impose any punishment. Instead it offered to settle back-tax claims without a penalty. And, the documents show, it allowed clubs to say agents jointly represented a club and a player. The tax authority declined to answer questions about this arrangement and why it hadn’t imposed penalties.

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