30-05-2010 / Exemption from source tax during Olympics
The IOC has forced the cities that organize the Olympics to exempt the sportsmen participating in the events, accompanying staff and organizations from source taxation. This means that no tax at source will be levied from prize moneys, fees, sponsoring and other income, which is connected to the Olympics. This has been the case for the 2010 Winter Olympics in Vancouver, Canada and will be the case for the 2012 Olympics in London, UK. See attached official statements from Canada and the UK.
This national measure is against Article 17 of the tax treaties that Canada and the UK have concluded with almost any country sending its sportsmen to the Olympics. These sportsmen do not pay tax in the country of the sporting activity, but solely in their residence country. The IOC has taken the criticism seriously that Article 17 very creates too much administrative work and might lead to excessive (or even double) taxation.
But perhaps the IOC has gone one step too far with forcing the countries, before they get the right to organize the Olympics, to promise that they will give up their source taxation. It may be that in some tax treaties with Canada and/or the UK the tax exemption as the method for the elimination of double taxation has been agreed. That would mean that double non-taxation would occur, because both countries will not tax the income. An example is the treaty between Canada and Switzerland. E.g. Simon Ammann has won two golden medals at the ski jumping in the 2012 Vancouver Games, but in addition his income connected to the Games is exempted from income tax both in Canada and Switzerland (was this an incentive for him to jump further?).
Some countries understand this problem and renegotiate their tax treaty and change the tax exemption method into the tax credit method for Article 17. An example is the new tax treaty between the Netherlands and the UK. Although it is still being discussed in the Dutch parliament, the expectation is that it will be ratified on time to be effective for the 2012 Games in London.
But the IOC seems to have forgotten that the national exemptions are in favour of sportsmen residing in tax havens, such as Monaco. Article 17 was introduced to counteract the tax avoidance behaviour of some top artistes and sportsmen. A recent example is Paula Redcliffe, who moved from the UK to Monaco. With the tax exemption for the 2012 London Olympics she will not pay income tax anywhere.
It would have been much better if IOC would have forced the Olympic countries to allow a tax exemption only for sportsmen residing in countries with which Canada and the UK have concluded tax treaties with the tax credit method for Article 17.
