We were interested to hear recently that Rafael Nadal had pulled out of next years Wimbledon “warm up” tournament at Queens, blaming the UKs tax treatment of foreign stars.

Surprisingly, this isn’t the first time that the UK’s taxation treatment of foreign sports stars seems to have hit the news – Usain Bolt, Tiger Woods and last years Champions League Final have all hit the headlines over the last 12-24 months.

So what is all the fuss about? In a nutshell, it all boils down to another naughty 3 letter word – tax!

Historically, HMRC had only sought tax on prize money or appearance fees but ever since their success in the case they brought against Andre Agassi they now look to tax a proportion of the individual’s global earnings from endorsements.

Consider Tiger Woods position last year when he competed in the Ryder Cup at Celtic Manor. He was purported to be earning circa $40m a year from his contract with Nike. Suppose he played 10 tournaments that year one of which was the Ryder Cup, in theory 1/10th of $40m could be taxed at 50%.

Quite a significant tax liability…particularly when there are no appearance fees at the Ryder Cup!

Should we be bothered? Probably not from an individual financial point of view – it will hardly dent Woods’s wealth.

However, this has the potential to not only significantly impact on the UK’s ability to attract the top stars to major sporting events but perhaps more importantly, the ability of the UK to host major sporting events….along with the loss of VAT on ticket sales, corporate entertaining and major sponsorship!!

Interestingly Uefa confirmed ”for tax reasons” Wembley Stadium would not be hosting the 2010 Champions League Final – instead it went to Spain’s Santiago Bernabeu Stadium – Spain has no equivalent tax law.

Arsenal’s Emirates stadium also lost out to Hamburg in the bidding for the 2010 Uefa Europa League Final after Uefa received assurances from the German Government that it would not tax visiting players if the final was played at Berlin’s Olympiastadion or Munich’s Allianz Arena.

Awarding a “dispensation” (i.e. a special status of no tax!!) to certain events such as next year’s Olympics, the 2013 Champions League final (which is taking place at Wembley again) or agreeing to pledge an exemption to FIFA if we had ever got near winning the ballot for the 2018 World Cup is not really the solution as it still leaves a massive amount of uncertainty when bidding for events.

Whilst the 2010 Ryder Cup got an exemption, that is probably a bad example as it was awarded some years ago…but what about Gleneagles in 2014 or the 2015 Rugby World Cup that England have just won the rights for?

Major sponsorship deals could be affected or worse still sponsors could pull out of tournaments if major stars do not participate.

The FA for example were reported as clearing £1m for this years Champions League final – For just one match.

A significant proportion of these profits will no doubt be fed back into the sport at grass roots level, which all goes into supporting a sport which already pays a massive amount of taxes each year to the Exchequer (£725m for 2009/10 and potentially £1bn for the current season).

The current regime really is a ridiculous piece of legislation that was badly thought out and will cost UK Plc in the long run, and not just in lost tax – sounds familiar…definitely another own goal!