The tax incentive?

June 12, 2009 5:24 PM

While Cristiano Ronaldo's motivations for going to Real Madrid are easy to understand, Real's Image_football006 willingness to commit £187 million to a single player (the total value of his transfer fee and contractual wage bill) is perhaps less easy to explain. Brilliant he may be, and no doubt a commercial asset, but shirt sales alone are not going to cover his £9.5 million first year salary (rising to £28 million by his sixth).

One factor that may have weighed into the considerations though, hinted at in a Times article today, is of course tax. Spain's tax regime looks to encourage multinationals and their executives to relocate there, and so offers high earners a tax rate of 23% for the first 5 years that they are resident in the country.

(To quote the Times:) "What this means is that if Cristiano Ronaldo wants to earn, say, £8 million after tax, it would cost the club just over £10 million a year. If United were to offer him the same deal, it would cost them about £16 million a season."

The UK tax regime then serves as a significant brake on what British football clubs can offer players, while the Spanish one enables them to be bolder (or ridiculous, depending on your standpoint). Not that it would be a good thing if our clubs started offering £500,000 a week salaries (which is perhaps inevitable now) but the tax angle is an interesting aspect.  It may not have had played any part in Real's considerations of course, but its unlikely that it did'nt. When your paying another £7 million a year to Kaka, every little helps.

While Cristiano Ronaldo's motivations for going to Real Madrid are easy to understand, Real's Image_football006 willingness to commit £187 million to a single player (the total value of his transfer fee and contractual wage bill) is perhaps less easy to explain. Brilliant he may be, and no doubt a commercial asset, but shirt sales alone are not going to cover his £9.5 million first year salary (rising to £28 million by his sixth).

One factor that may have weighed into the considerations though, hinted at in a Times article today, is of course tax. Spain's tax regime looks to encourage multinationals and their executives to relocate there, and so offers high earners a tax rate of 23% for the first 5 years that they are resident in the country.

(To quote the Times:) "What this means is that if Cristiano Ronaldo wants to earn, say, £8 million after tax, it would cost the club just over £10 million a year. If United were to offer him the same deal, it would cost them about £16 million a season."

The UK tax regime then serves as a significant brake on what British football clubs can offer players, while the Spanish one enables them to be bolder (or ridiculous, depending on your standpoint). Not that it would be a good thing if our clubs started offering £500,000 a week salaries (which is perhaps inevitable now) but the tax angle is an interesting aspect.  It may not have had played any part in Real's considerations of course, but its unlikely that it did'nt. When your paying another £7 million a year to Kaka, every little helps.

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