Athlete Image Rights and the potential tax consequences in the UK and Canada

Abstract

The relationship between athletes and HMRC has come to the forefront in the media in recent years. The media has continually reported on athletes alleged tax avoidance in relation to their image rights. This avoidance has led HMRC to launch numerous investigations into the tax affairs of athletes and their advisors, particularly within the footballing world. However, the ability to make these tax savings, both lawfully and unlawfully, has been facilitated by the UK’s reluctance to define what constitutes an ‘image right’ in law; coupled with its readiness to allow athletes to make these savings based upon this non-definitive ‘image’. This research will show that within the UK, the protection of a celebrity’s image is reliant upon the traditional intellectual property remedies such as a breach of confidence or passing off action. To date, the courts have interpreted these ‘traditional’ remedies in such a way that allows for the protection of the celebrity image, without ever defining what constitutes ‘image’ in the first instance. This research will also show that this reliance on the traditional remedies in the context of the protection of image rights is generally non-problematic as very few of these instances ever reach the courts, and those that do are generally provided with a legal remedy. The issues regarding this reluctance to legally define image however, become prominent when athletes use their image as a means of securing a tax reduction. HMRC allows athletes with the requisite goodwill to receive a portion of their salary as an ‘image rights’ payment, thus resulting in the athlete paying a lower percentage of tax upon this income. However, with no clear definition of image, the system of taxation in relation to high-earning celebrity athletes has been left open to abuse; the ‘why’ and the ‘how’ of which shall be discussed in this thesis. This thesis will also illustrate that Canada offers an alternative system of image rights and the taxation of high-earning celebrity athletes. The Canadian image rights system operates on both a statutory and common law level, in which the concept of ‘image’ is defined within both. Within the sporting context, in particular ice hockey, athletes are generally constrained by the provisions of collective bargaining agreements which ultimately limit their ability to receive image rights or endorsement payments as part of their salary from their employer club (although they are permitted to seek separate endorsement opportunities outside of a ‘club context’). However, Canadian athletes are not deprived of the ability to make taxation savings; whilst UK athletes are able to make savings based on their ability to sell their image, Canadian athletes are able to making similar savings due to the tax authorities acknowledgement of the short-spanning nature of their careers - thus providing athletes with various mechanisms to reduce their tax liabilities such as salary deferral arrangements, employee benefit plans, and retirement compensation arrangements. This research will ultimately show that the UK’s reluctance to define an image right in one area of law, which can then be exploited in another area, has ultimately led to a convoluted system of taxation open to abuse. In contrast, Canadian approach has developed a system which is clear, transparent and predictable; and one in which athletes, their advisors and employer clubs know their rights and responsibilities.