2010 World Cup Already Lots to Play For

The sooner we forget about South Africa's performances in the Cricket World Cup the better.

Other events of the Cricket World Cup are also best forgotten.   Moving swiftly on to more positive things; the 2010 World Cup.

While tax will not be on the minds of players fortunate enough to be in the World Cup final come July 2010, tax will be a major consideration in the build-up to the 2010 World Cup.  This is because, among other aspects, of a 15% tax which will, in the absence of effective tax planning, be imposed on the players participating in the tournament.
 
As part of the bidding process for the 2010 World Cup, certain guarantees were given by the South African Government to FIFA.  Two guarantees were made in relation to taxation.  These guarantees relate to specific exemptions from South African taxes.  Examples are broadly, (i) supplies of goods and services at FIFA sites (stadia, VIP zones) are exempt from income tax (ii) certain imported goods are free from customs duties (iii) FIFA and FIFA subsidiaries are granted exemption from all taxes in South Africa except taxes such as fuel taxes, excise duties.

But, what is missing from all the tax exemptions and dispensations is the fact that the South African Government chose not to exempt (foreign) players from a 15% withholding tax ("WHT") imposed on income received by or accrued to the players (clearly a dispensation which was not required in order to secure the World Cup).  With effect from 1 August 2006, Parliament introduced a 15% WHT on income received by or accrued to foreign entertainers and sportspeople.

The imposition of the 15% WHT is to be commended the rationale being that because foreign entertainers and sportspeople earn income out of South Africa, they should be subject to tax in South Africa.  Indeed, the WHT is consistent with international practice and the agreements for the avoidance of double taxation that South Africa has concluded with other countries.

While the 15% WHT is generally thought to be a good one, it is questionable that whether for an event of the scale and magnitude of a Soccer World Cup it is ideal.  Prize money will be substantial and as such the tax at stake will be too.  For innovative tax planners there is thus a lot to play for.

While South Africa recently introduced a new general anti-avoidance rule, it is noted that (legitimate) tax planning is perfectly legal.  There are many WHT avoidance strategies which have been successfully used world-wide.  Suffice it to say that for such a high-profile event and large amounts of tax at stake, the "floodlights" (unlike at the Cricket World Cup final!) will be on tax planning in this area.

Written by Eugene Bendel
Specialist independent tax adviser with
Bendels Consulting, Sandton, South Africa