Much has been written about Mr Beckham’s latest contract with the French club Paris Saint-Germain (PSG). What has probably been most surprising about this move was the amount of column inches dedicated not to the destination, his prospects on the pitch or how he will fit in with the egos system PSG play, but on vague references to the “tax dodge” he is supposedly engaged in.
The reports typically went something like this. Mr Beckham, as one of the most marketable footballers in the world, brings commercial benefits to a club, allowing them to put his name on a shirt, increasing sales exponentially. Therefore, Mr Beckham’s value (and salary) is not commensurate with his ability. Mr Beckham has become extraordinarily wealthy through exploitation of this.
Mr Beckham decides to donate a sum believed to be in excess of $5million to charity. Lip service is paid to this incredible gesture, while reporting in the next line that he will “benefit” from this donation through tax breaks. The implication is that Mr Beckham is somehow gaining an advantage, “dodging” a bill that is due.
Most commentators, however, never really explained how exactly this “scheme” would work. Details of the nefarious plan remained shrouded, elusive. Off shore trusts? Dutch sandwich? Bermudan tax triangle?
Should we have been surprised that an average football commentator, who would struggle to distinguish an under-lapping fullback from a pitch invader, was unable to illuminate the murky intricacies of French tax law?
Our interest was piqued. How might this work? Netscape Navigator was fired up and investigations began.
Rudimentary (and I must stress certainly not actionable, caveat donor etc) research indicates that charitable donations in France do, in fact, benefit from extremely generous tax treatment.
A tax credit is given for 66% of the value of the donation, up to 20% of the taxable income of the individual, so every €100 donated allows you to reduce your tax bill by €66. So Mr Beckham will have a large tax credit available to offset against any bill due.
The flaw in the reporter’s logic is that a) The credit is restricted to 20% of the taxable income and b) Having given it away, Mr Beckham no longer has any French income to generate a tax bill to use this credit against.
The reporters have rather spectacularly, and somewhat bitterly, missed the point. While it is true that Mr Beckham will not pay tax on his salary, this is mainly because he never actually receives it. In general tax credits or even deductions on charitable donations do not leave the donor in a better place financially – at best they just don’t pay tax on money they no longer have (or may never have had).
If you give away €100 and therefore avoid paying €41 in tax, you’re still €100 worse off. If you’d kept it and paid your tax, you’d have €59 left for sarongs. As “dodges” go, it would seem slightly counterproductive – depriving yourself of €100 to save paying €41. Rather like setting yourself, rather than the coal in the hearth, on fire, just to guarantee none of the heat is wasted.
The fact is that there is no cashflow benefit here. The beneficiaries are the charities – not the donors.
Other reports referred to Mr Beckham’s decision to base himself in Paris for only five months, neatly evading the French condition that anyone resident for six months becomes liable to tax on worldwide income (raising a liability). Some papers referred to this as “fiscal fancy footwork”, neatly avoiding the fact that the French football season finishes in May. Bloody cheek. Signing a contract for a five month period when the job is expected to last, erm….well….oh….five months.
Similarly, Ms Beckham’s decision to base the family in London, a little less than an hour from Paris, was bizarrely reported as “corroboration” of a clever plan, and not the perfectly understandable desire of an Englishwoman to return to her family, friends and country.
Mr Beckham’s altruism should be lauded. Charitable donations stand in direct contrast to deductions available for pension contributions or health insurance, both of which, while prudent, sensible and completely justifiable, do not contain an ounce of selflessness. Mr Beckham’s gesture does.
Next – The new rules on Irish donations!