Spain’s World Cup triumph came with a $50 million prize from FIFA, but the champions could lose a portion of that money to taxes in the United States.
Income earned by foreign athletes and sporting bodies through activities in the US can be taxed by the Internal Revenue Service. Spain’s prize money could face federal withholding of up to 30 per cent unless an exemption or reduction applies under the tax treaty between Spain and the US, according to a Fox News report. Fox News
The eventual bill will depend on how the prize money is classified and allocated across the three host countries. The US, Canada and Mexico agreed that payments to a participating association should be divided according to the number of matches the team played in each country.
Spain are among only 18 of the 48 participating nations whose countries have double taxation agreements with the US. Such treaties can exempt national football associations and official delegations from certain federal taxes on tournament earnings.
England, France, Germany, Italy and several other European nations have similar agreements. Apart from co-hosts Canada and Mexico, Australia, Egypt, Morocco and South Africa are among the non-European countries covered by treaties.
More than half of the World Cup nations, however, do not have such an agreement.
Brazil, Argentina, Japan, South Korea, Senegal, Nigeria, Haiti, Curaçao and Cape Verde are among the countries that could face higher US tax bills. Depending on their domestic laws, earnings may also be taxed in their home countries.
Tax consultant Oriana Morrison said the disparity would hit smaller football nations particularly hard.
“The teams that come from more advanced, sophisticated jurisdictions that have a tax treaty with the US, such as England and Spain, will have much lower costs than smaller countries such as Curaçao and Haiti, for example,” Morrison told The Guardian. The Guardian
Do the exemptions cover players?
Treaty protection for a football association does not necessarily exempt players from tax on their personal earnings.
Players may still owe US tax on bonuses, appearance fees, endorsements and other income linked to matches played in the country. Coaches and support staff could receive different treatment depending on the provisions of their country’s treaty.
The US has a federal corporate tax rate of 21 per cent, while the highest individual federal income-tax rate is 37 per cent. Foreign individuals and entities connected to the tournament may have US tax obligations, though the IRS has said the outcome depends on the circumstances of each case. IRS guidance
State taxes add another layer. California’s highest individual income-tax rate is 13.3 per cent, while New Jersey’s is 10.75 per cent. Florida, which hosted matches in Miami, does not impose an individual state income tax.
Ancelotti and Tuchel face different bills
The difference between treaty and non-treaty countries can also affect leading coaches.
Brazil head coach Carlo Ancelotti could be liable for taxes in both Brazil and the United States because the two countries do not have a comprehensive income-tax treaty.
England manager Thomas Tuchel could receive more favourable treatment under the UK-US treaty and avoid additional US federal tax on some payments from his federation.
The tax burden will therefore not be the same for every association, coach or player. Spain’s $50 million reward made them the biggest winners on the field, but their final earnings will become clear only after treaty provisions, income allocation and state taxes are taken into account.