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FIFA 2010 World Cup Tax Relief

01 May 2010   (0 Comments)
Posted by: Author: Moray Wilson
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FIFA 2010 World Cup Tax Relief

With less than two months until kick off at the 2010 FIFA World Cup, arguably the world’s biggest sporting event, there is much debate regarding the extent of business opportunities and other benefits that South Africa will derive from hosting this spectacle.
Although the figures vary, some analysts have estimated that the event will involve over three million people of all nationalities (spectators, officials, sponsors and players); will bring in over R20 billion to South Africa’s economy; and create as many as 159 000 new jobs.

Despite the global economic crisis and recent indications that a smaller number of international visitors are expected than originally forecast, a positive economic impact from the spectacle is likely to be felt across multiple sectors in South Africa, particularly the hospitality and the food and beverage industries in cities where games are being played.Repeated reference has been made in the press recently regarding the tax concessions provided by the South African Government to FIFA.The ambit of these concessions are summarised below.
Essentially, as part of the bid to host the 2010 FIFA World Cup, the South African Government issued various guarantees to FIFA. Included in those guarantees were special tax measures that would be introduced in relation to the World Cup.
At the heart of these special tax measures lies the concept of a ‘tax-free bubble’ in respect of income tax and value-added tax (VAT). Other features include the exemption from VAT on goods imported for sale, consumption or use during the FIFA World Cup; exemption from tax for the host broadcaster, a rebate item for customs and excise to deal with the World Cup; exemption from skills development levies (SDL) and UIF payments for non-residents working for FIFA; and a withholding tax exemption on amounts paid to commercial entities forming part of the FIFA event.
These guarantees were supported by a tax ruling issued by the South African Revenue Service (SARS) and, following promulgation of the Revenue Laws Amendment Act, No 20 of 2006 in February 2007, the applicable rules came into operation from 1 April 2006. The guarantees and special tax measures  were also applicable to the 2009 FIFA Confederations Cup, as well as the 2010 World Cup (together comprising the Championship), for the periods commencing one week before the start of the event and ending immediately after the closing ceremony.

The Tax Treatment Of Special Exempt Entities

A general exemption from income tax, duties and levies applies to FIFA, its subsidiaries and participating national associations, other than the South African Football Association (SAFA).These comprise so-called Part II entities.The exemption will apply to the extent that the activities of these entities are related to the Championship and any person who is liable to pay an amount to these special entities will not be required to deduct withholding taxes in respect of royalty payments, payments to non-resident sellers of immovable property, and payments to foreign entertainers  and sports persons.
Furthermore, these entities will not be required to register as employers for tax purposes and hence will not have to deduct any employees’ tax from amounts paid to their employees (employees who are residents of South Africa are instead deemed to be provisional taxpayers), but must comply with the provisions of the Unemployment Insurance Contribution Act and Skills Development Levies Act, to the extent that those acts apply in respect of any of their employees that are residents of South Africa.

Notwithstanding the exemptions detailed above, certain administrative and reporting obligations in respect of their tax affairs apply to Part II entities. As discussed further below, VAT is not applicable to these entities in most instances.

The Tax Treatment Of Other Entities

The concept of a tax-free bubble which applies fully, in most respects, to Part II entities,  applies only partly in respect of so-called Part III entities in relation to income tax and value-added tax (VAT). Unlike in relation to Part II entities, no exemption is provided for  Part III entities in respect of other taxes. These entities may be residents or nonresidents of South Africa and include commercial affiliates, licensees, host broadcasters or broadcast rights agencies, merchandising partners, FIFA-designated service providers, concession operators and hospitality service providers.These are defined in the following manner: 

•A commercial affiliate refers to those entities which have been granted specified advertising, promotional and marketing rights in relation to the Championship.
•A licensee means any entity (other than a commercial affiliate) to which FIFA grants the rights to use any official emblem on items of merchandise and in its marketing and advertising activities in relation to the production of the broadcast signals of the matches and other events of the Championship, and the provision of related services. 
•A broadcaster refers to any entity which acquires the right to broadcast or transmit the basic audio visual feed (or supplemental feed), or to broadcast live radio commentary of any match of the Championship in  any media.
•A merchandising partner includes any entities appointed by FIFA as its representative for the solicitation and appointment of prospective licensees, or any entity entitled to conduct FIFA or Championship retail merchandise operations.
•A FIFA designated service provider refers to officially appointed sole service providers that render ticketing, on-site information technology and accommodation solutions,and any officially appointed service provider providing signage, as well as the host broadcaster appointed by FIFA.
•A concession operator is the term used to describe those entities appointed to operate on-site food and beverage and merchandise concessions.
•A hospitality service provider refersto an entity appointed to conduct or operate the official hospitality programme or to provide core services relating to security, infrastructure and catering for the official hospitality programme.

To the extent that the tax free bubble applies in this context, profits on goods sold or services rendered will not be subject to any form of income tax. Furthermore,no withholding taxes will be applicable to payments between these entities and VAT on supplies by such entities will generally be applied at a zero rate.As a general principle, expenses incurred in the production of income that is exempt from income tax will not be permitted as a deduction and a reasonable allocation of expenses attributable to the exempt income will be need to be made.

To qualify for the income tax concession,goods must be consumable or semi-durable (not capital), and generally the services rendered must be intrinsic to the staging of the Championship, enjoyed or partially used at a Championship site, and must be paid for by individual members of the general public, FIFA or the Local Organising Committee (LOC). The exclusion furthermore only applies where the sale of goods or services rendered takes place at official FIFA sites.Those sites include official FIFA stadiums,exclusion zones and parking areas (during the Championship duration), Championship pressand television centres, certain VIP areas and facilities agreed upon by FIFA, training sites (on official FIFA-sanctioned training days),public viewing venues (on match days) and the nominated FIFA flagship store.

The official FIFA Flagship Store will fall within the tax-free bubble for six months before the 2009 Confederations Cup and until one month after the closing ceremony of the 2010 World Cup event.It will, however, only be viewed as a site (and hence within the tax-free bubble)as long as no tobacco products or cosmetics are sold at this store and all alcoholic beverages are sold only for consumption within an in-store restaurant.

FIFA stores, store-in-store outlets and kiosk outlets outside of sites are not considered to fall within the tax-free bubble and will therefore not qualify for tax relief. Concession operated outlets for food, beverages and merchandise, may,nevertheless, fall within the tax-free bubble.Part III entities are not required to register as employers for tax purposes if they employ only persons whose receipts and accruals are excluded from the definition of gross income in the Income Tax Act (for example, non resident members of the FIFA delegation, and non-resident staff members of a hospitality service provider,host broadcaster, etc.), and are not required to deduct employees’ tax from such persons.

These entities are, however, required to comply with the provisions of the Unemployment Insurance Contribution Act and Skills Development Levies Act, to the extent that those acts apply in respect of any of their employees who are residents of South Africa.As a general principle, the rules provide that any income received by, or accrued to,a non-resident of South Africa is deemed not to be from a source in South Africa in certain circumstances; for example, where such amount is derived as a result of the recipient of such income sponsoring or providing broadcasting in respect of the Championship.

Special Vat Rules For The 2010 FIFA World Cup

As indicated, where a Part III entity qualifies for tax treatment under the tax-free bubble, VAT on supplies of goods and services will be zero rated.As the supplies will be zero-rated (as opposed to exempt), input credits will be claimable by the vendors concerned.The VAT Act has also been amended to cater for an exemption from VAT on goods imported for sale, consumption or use during the World Cup event.

While VAT relief applies within the tax-free bubble, where goods and services are sold off-site (i.e. outside of a Championship site)or entities choose to provide those goods or services (including accommodation) as the principal seller or as one of the principal sellers, a standard rate of 14% will be applied (i.e. the zero-rate will not apply)
In respect of hospitality sales (excluding hospitality sales for hospitality within a site), hotel and accommodation charges fall within the ambit of services and will therefore be subject to VAT at the standard rate of 14%.Any VAT incurred will not be refundable. Where FIFA, a FIFA subsidiary or any participating national association (i.e. Part II entities) choose to sell hospitality off-site or accommodation as the principal seller or as one of the principal sellers, output VAT must be accounted for in respect of those sales.

Similarly, ticket sales will be subject to VAT at the standard rate of 14% and FIFA, its subsidiary or any participating national association will be liable to SARS for the payment of VAT on the sale of tickets.The supply of services by the LOC to FIFA, comprising the organising, staging and hosting of the 2010 FIFA World Cup, will be subject to VAT at the zero rate. 
A New Rebate Item For Customs And Excise Duty

A new rebate item was inserted into the Customs and Excise Act to deal with the World Cup.The rebate results in no customs duty being payable on goods imported for sale, consumption or use in the World Cup by qualifying persons and employees of qualifying persons.Qualifying persons include FIFA designated service providers,FIFA and FIFA subsidiaries,licensees,commercial affiliates and hospitality service providers.

The goods which will be free from import taxes will include, amongst others, trading stock and samples of trading stock being consumable or semi-durable goods, provided it is imported by a qualifying person with the intention of resale at a site or re-export within the re-export time frame; capital goods, consumable goods and promotional materials, not for resale and individually of little value, for use by qualifying persons; household furniture and other household effects, and one motor vehicle and equipment for the exercise of a trade by an employee of a qualifying person who is temporarily seconded to SA for the purposes of the 2010 FIFA World Cup.
Locally manufactured, as opposed to imported, excisable goods sold in the Republic at designated FIFA sites during the event do not qualify for any rebate of excise duty and according to SARS, specific measures (e.g. post-clearance audits) will be put in place to ensure that all the provisions of the rebate item are complied with, including safe-guarding against such rebated products being consumed duty free outside the designated sites in  the Republic.

The Tax Treatment Of Certain Non-Resident Individuals

Of further interest is the tax treatment of certain non-resident individuals.Where, for example, an organisation qualifies as an other entity (i.e.commercial affiliates, merchandising partners,FIFA-designated service providers or broadcasters, etc.) and enjoys tax relief under the tax-free bubble, a similar tax exemption will apply in respect of the receipts and accruals of its non-resident members or employees (i.e. these individuals will not be subject to South African tax).Specifically excluded from this exemption are any officials of SAFA and any directors and staff members of the LOC.
In addition, the tax-free bubble does not apply to team members, who will be subject to the ordinary application of South Africa’s tax system.Consequently, subject to any tax relief that might apply in terms of an applicable double tax treaty, the normal rules under which a withholding tax is levied on payments made to non-resident entertainers and sports persons will apply to non-resident team members.

Match And The Hospitality Industry
The organisation Match has been appointed as an official FIFA-designation service provider for the 2010 World Cup.In contracting with the hotel and restaurant industry, Match has acted as a middleman between hospitality providers and end-users or customers. With Match qualifying for tax treatment as an other entity, its receipts and accruals will be excluded from gross income (i.e. will be exempt from income tax) to the extent that this is derived from the sale of any goods or rendering of services directly connected to the Championship, and the goods are sold or the services are rendered within the parameters for which Match has been accredited by FIFA.
Source: By Moray Wilson (TaxTALK)


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