The new Criminal Finances Act could have significant implications for the way sports clubs and their players conduct their financial affairs and use their image rights. Harrison Drury’s James Dickinson explains.
For the more famous faces among us, it can be a lucrative investment to protect their image and those rights that attach to it.
However, it is crucial that investments in these rights are dealt with in a way that accords with current laws. Earlier this year the Criminal Finances Bill received Royal Assent. The Criminal Finances Act 2017 (‘the Act’) will come into force in on 30th September 2017.
This Act creates two new offences which introduce a strict criminal liability on ‘relevant bodies’, such as corporations or partnerships, for failing to prevent criminal facilitation of tax evasion by any of their ‘associated persons’, namely any person performing services for or on behalf of the relevant body.
Such ‘persons’ will include employees, agents and external agents, such as sub-contractors. The relevant body’s failure may relate to the facilitation of either the evasion of UK tax liabilities (the ‘UK offence’) or the evasion of overseas tax (the ‘foreign offence’).
So, what are the implications of this for the sports industry?
Corporate failure to prevent the facilitation of tax evasion
Liability for a corporate failure to prevent the facilitation of tax evasion can be significant and directors will no longer be able to rely upon the company’s legal personality to protect them from prosecution.
This offence can, in appropriate circumstances, be prosecuted by piercing the “corporate veil” and hold directors and their professional advisors liable for any actions an employee may take while at their company.
The only defence is for the relevant body to be able to demonstrate that it has reasonable prevention procedures in force, that is, procedures designed to prevent any persons associated with it from committing the facilitation of tax evasion offences.
An example could be a case involving a high-profile football player or manager of a well-known football club using improper methods to try and protect their investment in their image. If the player or manager was found to be in breach of any offences relating to tax evasion, the football club itself, its directors and advisors could all potentially be found guilty of facilitating tax evasion.
It’s therefore extremely important for companies to get their house in order, particularly in relation to their tax affairs and ensure that “reasonable procedures” are in place to prevent tax evasion offences occurring.
Impact on the world of football
One of the major industries that will need to consider its position is the sports industry, in particular the football industry. Failure to properly account for taxation relating to a player’s image rights may have extremely serious consequences for the player, the club and its directors, and professional advisors.
The new legislation being brought into the UK will make clubs, directors and professional advisors accountable if they are found to have assisted, in any way, in any scheme found to be evading tax. Anyone committing an offence under this Act could face an unlimited fine or other ancillary orders, such as a confiscation of assets.
There have been recent examples of cases of high-profile celebrities where it has become apparent through tax investigations that image rights can be owned by companies off-shore, in which the celebrities own a stake, and any monies earned in relation to those rights can be paid into other off-shore bank accounts where there is little to no tax regulation. Limited tax is then paid on the earnings accumulated by those image rights.
Registering image rights and tax planning
There is an alternative and transparent course of action; however, that sports stars (or anybody for that matter) can utilise to protect their image rights while also making any revenue on these image rights as tax efficient as possible.
For a number of years now, both individuals and companies have had the ability to register their image rights on, for example, the Guernsey Image Rights Register. An image rights registration confirms entitlement to these image rights and provides statutory evidence of ownership which can support any income tax declarations regarding rights-related earnings.
There has, to date, been no case law brought before the English courts in respect of a registration on the Guernsey Image Rights Register. However, in the case of Robyn Rihanna Fenty (‘Rihanna’) v. Arcadia Group Bands Ltd (t/a Topshop), there was a comment made by the court that if Rhianna had registered her image rights in Guernsey, issues such as the ones that were at the heart of this case would quite possibly not have presented themselves.
The register is open to anybody to register their image, whether you’re involved in sport, media or business. If you have an image that has value, protecting it using this register could be a crucial step towards efficient tax planning and possible protection from the offences created by the UK Criminal Finances Act 2017.
By having the registration in place, it can help to fight against and prevent any exploitation of your image in, potentially, any jurisdiction. People are able to register not only their own image, i.e. their face, but also any gestures, brands, logos or even a voice.
Companies, teams and clubs can also register their distinctive personalities, including logos, brands, mascots and even shirts. Current well-known names featuring on the register include Michael Owen, Sir Ben Ainslie, Heather Watson, Manuel Pelligrini, The New Saints FC and MacLaren F1.
Other protections which afford rights, such as trademarks, copyright and design rights, still exist and are not replaced or superseded by registering your rights on the image register; this is simply a further layer of protection, and an efficient tax planning mechanism.
What to do now
With impending introduction of the Act (and for those involved in the footballing world, with the English transfer window in full swing), it is prime time for those involved in the sporting industry to consider their personal tax position. For others too, it is an opportune moment to consider what procedures they currently have in place to prevent any liability being found under the Criminal Finance Bill 2017.
Harrison Drury has a team dedicated to advising clients on a wide range of issues relating to intellectual property, copyright and image rights. For more information on this issue, please contact James Dickinson on 01772 258321.