AS Monaco’s taxing problem explained
AS Monaco are the latest European football club to receive significant foreign investment, prompting a summer of activity that, on their return to French football’s top division, has seen them snap up some of football’s most prized players. However, before Monaco start a new dynasty, the Ligue de Football Professionnel and the French Football Association (the “FFF”) are seeking to challenge the tax advantages that appear to give Monaco an unfair advantage in the highly competitive transfer market.
In December 2011, with AS Monaco languishing in the second tier, the club was sold to an investment group led by Russian billionaire, Dmitry Rybolovlev, whose estimated wealth is £9 billion. Since then, the club has experienced an extraordinary transformation leading them back to French football’s top division and the signing of football’s most exciting talent including Radamel Falcao (pictured), Joao Moutinho and Ricardo Carvalho. There must be something more to this than just the sea air.
Under a long standing agreement between Monaco and France, whilst French nationals living in Monaco pay French income tax, Monaco levies no tax on individuals, wherever they are resident. Since France has no authority under the agreement to charge French tax on Monegasque residents, non-French individuals who move to Monaco will not be subject to any income tax on their Monaco earnings.
It is well known that Monaco has tax haven status according to the IMF and has long been the playground of the wealthy. Whilst the residence of a Formula One driver may barely register more than a raised eyebrow, the perceived advantage that this tax status may provide AS Monaco in attracting players is causing outrage amongst French football clubs and beyond in light of AS Monaco’s new found buying power and tighter regulation on club’s spending being imposed by UEFA.
Players not having to pay income tax on their salary, paying a player a net amount of €100,000 per week costs the club significantly less than its taxpaying rivals. The implications are clear in a time when many clubs in Ligue 1 are struggling with the economic climate. This is further exacerbated by the fact that France’s highest earners pay income tax at a rate of 75 per cent. So what is likely to be done?
Ruling by the FFF and challenge by AS Monaco
The FFF have stated their intention to block AS Monaco’s promotion to Ligue 1, by making it an entry requirement for Ligue 1 that French clubs must have a head office in France, giving Monaco a deadline of June 2014. Such a move would purportedly cost AS Monaco around €200 million. AS Monaco have signalled their intention to robustly challenge any such ruling on the grounds that it violates several fundamental principles of French and European law, notably the principle of free movement, free competition, free access to sporting competitions, and also the Franco-Monégasque tax convention.
"With a high wage bill and an average attendance of less than Barnsley, AS Monaco may have difficulty balancing the books."
The FFF ruling does appear to be politically motivated and discriminatory and AS Monaco may rightly ask - why now? AS Monaco’s tax status has not changed in many years and they have played in the French professional leagues since 1931 without a residency requirement. A combination of AS Monaco performing well on the field and the new 75 per cent top rate of income tax in France may provide answers.
The principality of Monaco have their own football association and, therefore, AS Monaco may be considered to be a guest in French football. Does the FFF ruling simply mean this guest will be placed on a financially level playing field? Does it not also promote a competitive balance and could this be used as a factor to justify the ruling?
The European Court of Justice has long recognised the importance of competitive balance to team sports by preserving a degree of equality between clubs and uncertainty as to results. There is a strong argument that the competitive balance between French football clubs is distorted if AS Monaco can recruit on privileged tax terms. Therefore, there is justification for the FFF to introduce a rule which on the face of it impinges on fundamental EU legal freedoms, although we could query whether the FFF’s response is proportionate.
The UEFA Statutes at Article 51(bis) give the FFF flexibility to take into account “financial considerations” as well as sporting merit when determining a club’s entitlement to be promoted. The FFF may well argue that preferential tax treatment is a relevant consideration.
This should also be viewed against the backdrop of greater financial regulation in football with UEFA’s Financial Fair Play Regulations (the “FFPR”) applying at the start of next season to all football clubs who want to play in Europe (subject to the FFPR surviving a current legal challenge). The basic principle underpinning these regulations is that football related revenue must not exceed football related expenditure beyond an ‘accepted deviation’.
Various expenditure is also exempt from these regulations, most notably expenditure on infrastructure and youth development. With a high wage bill and an average attendance of less than Barnsley, AS Monaco may have difficulty balancing the books. AS Monaco have clearly stated aspirations to play in Europe and the removal of their preferential tax status may make it even harder to comply with the FFPR and thus put a serious dent in their plans for European domination.
The implications for AS Monaco and French football could be significant if the club are not successful in overturning the FFF ruling. Although it may promote competitive balance, AS Monaco will be less attractive to top sponsors and it may also diminish the status of Ligue 1. You would imagine that the signing of Falcao, Moutinho and Carvalho would be conditional on top flight football (or equally being in Ligue 2 may give them the right to terminate their contracts depending on the drafting of any ‘relegation clauses’). However, top players attract the biggest sponsors and the FFF may be scoring an ‘own goal’ by turning away a star studded AS Monaco side and the boost in prestige it would bring to the league.
Paul Shapiro and Martin Griffiths are associates at London-based Charles Russell LLP.blog comments powered by Disqus
Major yacht racing events announce new sponsors - 05 November 2009
A1 Team Monaco driving for environmental perfection - 06 February 2009
Jeff Gordon enters unique ‘cause-driven’ sponsorship - 28 October 2010
Microsoft enter into lifestyle partnership with NFL - 17 November 2011
AS Monaco gear up for new season with late deal - 09 August 2013
Related blog posts
Emmanuel Petit talks apps, FFP and Arsenal - 19 October 2012, Quick-Fire Questions
Liverpool FC commercial chief explains motorsport backing - 18 November 2009, Notes & Insights
London to host 2017 IAAF World Athletics Championships - 11 November 2011, Notes & Insights
Formula One Business Diary: Monaco - 28 May 2013, Notes & Insights
Next month in SportsPro: Peace and Sport - 28 September 2011, Notes & Insights