The Olympic rip-off: Part Two

Here is an interesting story, posted on the Ethical Consumer
website, about how the big sponsors of the London Games enjoy nice tax
benefits on top of everything else. Looks like we are giving more to
them than they are giving to the games. If nothing else this shows yet
again how big business views these events – just another way of making
money at our expense.

Here is an interesting story, posted on the Ethical Consumer website, about how the big sponsors of the London Games enjoy nice tax benefits on top of everything else. Looks like we are giving more to them than they are giving to the games. If nothing else this shows yet again how big business views these events – just another way of making money at our expense.

NB: Since the article was written McDonalds have "decided" to forgoe the tax break.

The Great Olympic Tax Swindle

Tim Hunt (http://www.ethicalconsumer.org/commentanalysis/corporatewatch/thegreatolympictaxswindle.aspx) looks at how tax avoidance schemes now lie at the heart of the modern, corporate-dominated, Olympic Games.

In July and August this year Stratford, East London, will become a
temporary tax haven. Millions of pounds will be channelled through
foreign subsidiary companies operating in the area before it leaves
these shores for the pockets of shareholders and CEOs the world over.

How is this possible in a country like the UK you might ask? The sad
fact is that enacting tax avoidance legislation has now become a
criteria for hosting international competitions such as the Olympics.

Big name athletes such as Usain Bolt (along with the organisers) have
applied pressure to potential host nations to ensure that winnings (and
profits) are not taxed. (8)

Zero tax

Without these tax sweeteners the IOC would simply take their
corporate circus elsewhere and so begins a race to the bottom in a
bidding process that echoes the offshore system. New tax rules ushered
in as part of the winning Team GB bid include ‘a temporary exemption
from UK Corporation Tax and UK Income Tax for certain non-resident
companies’. (1)

The legislation is written to include ‘partner’ organisations such as
McDonald’s and Visa. Both, along with other ‘partners’, look set to
make a tax-free fortune. The former will a monopoly on vending branded
food and the latter a total monopoly on venue and ticket payment
methods.

The HMRC says “For the purpose of this exemption a London 2012
Partner is an organisation (known as a Commercial Delivery Partner) that
is supplying services to LOCOG in return for the right to market and
advertise themselves or their products for commercial purposes by
reference to their association with the Games. It includes a company
connected with the Commercial Delivery Partner.” (1)

The new legislation also exempts all foreign nationals working on the
games in the UK from paying income tax on any earnings. Thousands will
be exempt from taxation from competitors to media workers (including
journalists, technicians and producers) to representatives of official
Games bodies and technical officials (including judges, referees and
classifiers) along with the athletes themselves.

Familiar story

Many of the corporate sponsors are no stranger to the more
traditional tax havens. The table below shows the 18 partner companies
and the subsidiaries they have in tax havens. The long list contains all
the usual suspects such as the Cayman Islands, Jersey and the British
Virgin Islands. General Electric’s list of subsidiaries was most
interesting. It included 71 subsidiaries listed in just one building in
Ireland! Only one of the partner organisations, British Airways,
appeared not to have subsidiaries registered in any tax havens.

It is also worth mentioning that several of the companies, including
Visa, Coca-Cola and Dow, have subsidiaries incorporated in Delaware, and
two – Samsung and Acer – are now using export processing zones in
China. The new legislation also exempts all foreign nationals working on
the games.

How much is at stake?

To get a rough idea of just how much money is likely to be lost, it
is useful to look at the FIFA World Cup as the two events share similar
characteristics. In the last World Cup in South Africa the hosts were
asked to create a ‘tax bubble’ through ‘revenue amendment laws’ passed
in 2006. This creates a situation much like the one at the London
Olympics through the legislation passed through the British Parliament
in the same year.

According to research released by the German Government at the 2006
World Cup in Germany, the German football association (DFB) paid 101
million Euros (around £87.8m) in various taxes on its activities during
the tournament. Due to The London Organising Committee being exemption
from Corporation Tax, this potential revenue stream will be lost. (2)

Germany also taxed the non-resident players and trainers as normal,
charging them 21.1% on their football fees and bonuses, and other
commercial earnings, for instance, from appearing in adverts. That
raised just over seven million Euros (£6.1m). (2) Due to the new
legislation, the UK is not taxing such earnings.

Meanwhile FIFA earned more than 2.8 billion Swiss Francs (£1.72bn) in
the four years up to and including the competition, mainly from selling
broadcasting rights, sponsorship, hospitality packages and licensing
rights in advance, plus a share of the local organising committee’s
eventual profits from the tournament. Much of that will have gone
directly to FIFA in Switzerland, outside the scope of the German tax
net. Yet the committee paid just one million Swiss Francs (£613,500) in
tax to the Swiss authorities and nothing to the German treasury. (2)

Like FIFA, the International Olympic Committee (IOC) is based in
Switzerland and will therefore enjoy the same low tax rates. In addition
it is exempt from paying tax in the UK on any monies earned from the
London Games.

Currently the IOC is projected to earn revenues of £2.7 billion from
the London Olympics and the total amount of lost tax revenues is
estimated to be over £600 million.(7)

LOCOG itself (the London Organising Committee of the Olympic and Paralympic Games) is also exempt from taxation.

The body is chaired by Paul Deighton, a former Chief Executive of
Goldman Sachs during the period the bank were using offshore schemes to
pay executive bonuses.(5) LOCOG itself is also using much-criticised
employee benefit trusts, often registered in Jersey or Guernsey, to pay
organiser’s bonuses once the Games are over.(6)

With the additional sums that LOCOG could have been liable for, the
total figure lost approaches £700 million. This calculation doesn’t even
take into account the potential tax income from the profits of
corporate partners who will also enjoy the generous tax breaks
previously mentioned.

Lost revenue

So, despite putting severe weight on London’s public infrastructure,
those profiting from the games and many of those working at them will be
exempt from tax. In a time of austerity this is money the Exchequer can
hardly afford to loose, especially when it has already paid out
somewhere in the region of £11 billion to fund many parts of the
project. (3)

Even arch capitalists, such as the credit rating agency Moody’s, have
stated that “Overall, we think the Games are unlikely to provide a
substantial macro-economic boost to the UK during 2012. However, a
number of individual sectors and creditors [banks] look well placed to
benefit from the short-term fillip that the Games should provide.” Their
report goes on to say that those who will benefit most from the games
are the corporate sponsors. This is hardly surprising given the tax
breaks they will enjoy. (4)

In effect, the Olympic Games, like many other major sporting events,
have become a lesson in tax avoidance. The perpetrators of the tax
schemes are, in most cases, serial offenders and local legislators (in
this case the UK Government), who, under the fear of being passed over
in favour of other countries, pass new legislation to legalise tax
avoidance.

This tactic of ‘reduce your tax thresholds or we’ll take our business
elsewhere’ has long been used by financial elites in tax havens but it
is now being extended, albeit on a temporary basis, to countries with
usually strong legislators via major sporting events from the FIFA World
Cup to the London Olympics. Some of the laws have already been extended
to cover the Commonwealth Games in Glasgow in 2014, and this process of
relaxing tax rules looks set to continue with costs borne, as ever, by
ordinary tax payers.