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1. The Covid 19 epidemic and consequential lockdown measures have had a disastrous impact on the seasons of winter and summer sports alike. To take but one example, Tottenham Hotspur Football Club has said that it envisages a loss of revenue of £200 million, prompting it to seek funds from the Covid Corporate Financing Facility. The combined impact on Premier League revenues as a whole is predicted in the Deloitte Annual Report for 2019-2020 to be around £1 billion. This article considers the potential impact of the Covid crisis on competition law and tax issues for sports clubs and regulatory bodies. It reflects some thoughts I gave for a Blackstone Chambers Sports Webinar on 25 June 2020 (available here). I have five core points for each topic.
(1) Competition law issues
2. Starting with competition law issues, the first point to note is that while certain legislation has been made by the Government removing competition law constraints, in sectors such as grocery retail and healthcare services, to enable a coordinated level of supply provision, no such approach has been adopted for professional sport. The competition rules continue to apply as before.
3. Although nothing has therefore changed, this may not be particularly significant. While competition law no doubt has a disciplining effect on clubs and their regulatory bodies, it has an uneasy relationship with sport at the best of times, notwithstanding the absence of any “sporting exemption” (at least for rules which are not purely sporting ones), as confirmed by the Court of Justice of the European Union (‘CJEU’) in Case C-519/04 Meca-Medina  ECR I-6991. Challenges to sports rules based on competition law have not fared well of late. A challenge to the English Football League’s (‘EFL’) financial play rules failed in Queens Park Rangers FC Ltd v. EFL ; as did the challenge to Premiership Rugby’s salary cap scheme in the Saracens v. Premier League Rugby  case. Also, the recent challenge to the FA’s decision to draw stumps on the non-EFL league season in South Shields Football Club 1888 Ltd v. The Football Association was striking because of the absence of any competition law aspect to the challenge.
4. Part of the problem here is that defining the relevant market proved exceptionally difficult in both the QPR and Saracens cases. Moreover, while Saracens identified the market as being that for the supply of English qualified elite players’ services, alternatively a worldwide market for such players or a worldwide market for all elite players, their appointed expert provided no actual evidence on market definition. Other problems arise in identifying what the counterfactual position would have been, absent the impugned measure. Once it is accepted that some form of regulation is required for the sustainability of the sporting competition, impugning the specific measure chosen becomes much harder.
5. The second key point is that while competition law challenges to a sport’s body’s response to the impact of Covid crisis remain possible, they are not likely to get a receptive airing. Courts and Tribunals are likely to take a relatively relaxed approach to any challenges to the attempts made by clubs and sporting bodies to bring order to the chaos of the season or to introduce specific measures aimed at re-establishing financial viability. That might plausibly include salary caps along the lines of the Premiership Rugby model; or structured wage renegotiations between players and clubs.
6. However, as a third point, the practical imperative of the present situation cannot be pushed too far. Clubs would not get away with coordinating an approach to ticket prices or seeking not to compete with one another in the player transfer market, for example. They would risk civil and criminal investigation. We know from the London Welsh case that competition law arguments, in particular the need for any rule restrictive of competition to be proportionate, can have a significant impact in practice. It is also true that price-fixing or output restricting measures to deal with a crisis have not fared well before the European Courts. A series of tests have to be met to justify a restriction on competition, but the need for economic survival is not enough. In Case C-209/07 Beef Industry Development Society Ltd  ECR I-8637, the CJEU ruled unlawful measures taken in Ireland to deal with over-capacity in the beef processing industry. The crisis led to attempts to share supplies of services between far fewer firms. People were paid to leave the industry. The CJEU held that was an object infringement of Article 101 TFEU. The fact that market participants had the subjective intention of ensuring overall survival of the industry (given profitability issues) was irrelevant. The end did not justify the means.
7. Fourthly, the main area where competition law could have a potential impact would be if there was an over-rigid application of financial fair play rules (or the Profit and Sustainability Rules that are now applied by the Premier League and the EFL). Clearly the external financial shock of Covid will have a huge impact on club revenues. This may well have a knock-on impact on the ease with which clubs can meet financial fair play requirements. Even assuming the resumption of a full sports calendar next season, it could be some time before 60,000 spectators are allowed back in one place together.
8. As matters stand, this lack of revenue could lead to many clubs failing the relevant fair play tests. Sports bodies will no doubt be pressed to agree dispensations from the full rigour of these rules. Given the limited success of pure competition law arguments, we may see more clubs seeking to rely on the common law restraint of trade doctrine considered in Bradley v. Jockey Club  EWHC 2164, per Richards J. The submission would be that the insistence on the full rigour of the rules in these exceptional circumstances, coupled with the gravity of any sanction, was disproportionate and therefore unreasonable. In the public law sphere, recent case law has shown an increasing tendency to merge concepts of reasonableness and proportionality.
9. One point to watch out for though is the risk that the restraint of trade doctrine cannot be applied in circumstances where there is no underlying competition law infringement. Langley J in Days Medical Aids Ltd v Pihsiang Machinery Manufacturing Co Ltd  1 All E.R. (Comm) at - held that the restraint of trade doctrine was a form of domestic competition law which could not be applied where the agreement complied with EU competition law, which took priority. While that reasoning has been doubted in many quarters (including by the Arbitral Panel chaired by Lord Lawrence Collins in QPR v. EFL) it was applied by Roth J in Jones v. Ricoh Manufacturing  EWHC 1743 (Ch) at .
10. The fifth and final point concerns State Aid. The EU Commission adopted a Temporary Framework on 19 March 2020 and has published two revisions to it since then. Most of these are directed at smaller and medium sized enterprises (‘SMEs’), so larger clubs will not be eligible. For businesses with less than £45 million group turnover, the Corona Business Interruption Loan Scheme and another scheme of Government grants have been notified by the UK to the EU Commission and approved. In addition, Government guaranteed loans are also available to businesses with higher turnover up to £500 million under the Coronavirus Large Business Interruption Loan scheme, which has also been approved. The Temporary Framework has ushered in a series of positive and speedy responses from the EU Commission for State aid. Crisis hit sports might well lobby for bespoke measures for UK sport and try and seek Commission approval.
11. But a word of warning. Other measures seem not to have been notified, on an assumption by the Government that State aid approval is not needed. The Covid Corporate Finance Facility is operated by the Bank of England, but backed by the Treasury. It does not appear to have been notified as aid to the EU Commission. It would seem that a view was taken that the Temporary Framework’s provisions permitting recapitalisation measures would sanction such a measure. However, there may be an argument as to whether those arrangements amount to the transfer of State resources for which specific authorisation would be needed, since it is not available to all industrial sectors or industry participants. Similarly, business rates relief for companies in the hospitality or leisure sector has not been notified as aid to the EU Commission, but at first blush would appear to be a selective measure of support. The GCEU in Case T-865/16 Fútbol Club Barcelona v. Commission  EU:T:2019:113, GCEU recognised at  that favourable tax treatments for certain sports clubs could, in principle, amount to State aid.
12. Businesses taking advantage of these schemes should be aware that if the Commission finds that a non-notified measure is selective, then there is a risk of the relief being disapplied for breach of the “standstill obligation” even if, ultimately, it is notified for approval belatedly and approved. While the payment holiday for business rates may, in practice, have been achieved by the time any adverse decision is taken, one possible enforcement measure would require interest to be paid on the benefit of the money received until such time as approval is given. The Temporary Framework also has certain limits on the cumulative aid which can be granted which should be observed.
(2) Tax issues
13. First, it is well known that there has been a general deferral of requirements to pay VAT and a greater willingness to give time to pay agreements for PAYE obligations. Some tax advisers have been cautioning against taking advantage of these schemes, for fear of building up future compliance issues. Others seem to think the prospect of a future tax amnesty means they are worth taking even if not strictly needed.
14. Secondly, there is an issue concerning whether the impact of Covid might be advanced as a reasonable excuse for non-compliance with tax obligations. HMRC has now issued updated guidance which states that it “will consider coronavirus as a reasonable excuse for missing some tax obligations (such as payments or filing dates).” However, the taxpayer must explain the particular impact of Covid and make the payment or file the return as soon as they reasonably can.
15. Thirdly, a number of key personnel may well be unable to move between different jurisdictions. For non-UK registered companies with directors stuck in the UK, this may cause “central management and control” issues with the risk of such companies becoming tax resident in the UK. Virtual board meetings make pinning down the specific location of a board decision difficult. The same difficulties may raise personal tax issues for employees who work on a cross-border basis. Compliance with the statutory residence test will need to be considered (Schedule 45, Finance Act 2013). Paragraph 22 of Schedule 45 allows a maximum of 60 days to be ignored in any day count where the visitor (P) “would not be present in the UK at the end of that day but for exceptional circumstances beyond P’s control that prevent P from leaving the UK” and “P intends to leave the UK as soon as those circumstances permit.” HMRC has updated its Manual (RDRM11005) to give guidance on exceptional circumstances in the context of the Covid crisis.
16. Fourthly, with so many people working from home, businesses will wish to consider the exemption for homeworking arrangements in section 316A of the Income Tax (Earnings and Pension) Act 2003 (‘ITEPA 2003’). The usual rule is that income tax is payable on the payment of expenses, with no deduction possible unless the “wholly, exclusively and necessarily in the performance of duties” test set out in section 336 ITEPA 2003 is met. However, section 316A says no income tax is payable on household expenses incurred by the employee under “homeworking arrangements.” These are defined as “arrangements between the employee and the employer under which the employee regularly performs some or all of the duties of the employment at home.” The limit is set at £6 per week for this tax year, which quickly adds up for a payroll of many employees. There is no guidance from HMRC yet as to whether “Covid homeworking” qualifies.
17. Finally, it is well known that sports organisations (and, in particular, football clubs) were on HMRC’s radar before the pandemic. A BBC report in March 2020 confirmed that HMRC was “investigating the tax affairs of 330 footballers, 55 clubs and 80 agents, up from 173 players, 40 clubs and 38 agents in January 2019. HMRC said it had recovered £396m from the industry since 2015.” Such clubs will benefit from the temporary amnesty given by HMRC for tax enquiries. But the enforced period of quiet could sensibly be used to prepare for detailed requests for information which have been made or will be prompted. That would help forestall HMRC’s reliance down the line on formal information notices under Schedule 36 of the Finance Act 2008.
18. This may prove particularly important given the signals from the 2020 Budget. In particular, the Government made clear that it was gearing up for a significant clampdown on avoidance mechanisms. It announced the deployment of additional compliance officers and new technology for HMRC, so as to “further reduce the tax gap through additional compliance activity and expanding debt collection capabilities.” In other non-sports sectors, a unit within HMRC has taken to launching a very wide-range of overlapping and co-extensive enquiries into corporation tax of the business, income tax of key personnel, employment taxes and VAT. HMRC is also consulting on the imposition of an obligation for large businesses to notify the Revenue if they take a tax position which is of “uncertain treatment.” That is, a situation where the business believes HMRC may not agree with their interpretation of legislation, case law or guidance.
19. In terms of the issues likely to be under examination, press reporting from the unannounced inspections of Newcastle United and West Ham football clubs in April 2017 suggest that dual representation of agents for player and club and agents’ fees may be under the microscope. Another issue is likely to be concerns about the treatment of image rights and the risk of abusive use of Image Rights Companies as a shelter for employment income. Following the Rangers case, RFC 2012 Plc (in liquidation) (formerly Rangers Football Club Plc)  UKSC 45, an employee who receives as a sum of money from their employer as a reward for work done or services rendered, whether directly or indirectly, is taxable on that sum.
20. That principle was applied in Hull City AFC (Tigers) Ltd v. HMRC  UKFTT 227 (TC) in relation to image rights. The case concerned the player Geovanni’s time at Hull, (played 60, scored 11) and a BVI company that contractually held his “image rights”. The First-Tier Tribunal (‘FTT’) found that the existence of the image rights agreement was not conclusive, even though it was not a sham. The question was whether the payments were emoluments as a reward for the player’s past, present or future services as a football player, or whether they were consideration for the licensing of his image rights. The club bore the burden of proof in relation to this. The FTT looked at the substance of the arrangements, rather than their form. It found the following factors relevant at :
20.1. The Club had no clearly defined intention or plan to commercially exploit the player’s overseas image rights;
20.2. There was no reliable evidence as to how the club arrived at the amount of the annual payments;
20.3. The club did not obtain any valuation of the player’s overseas image rights before entering into, or renewing, the agreement;
20.4. In 2009, the club offered to increase the sum payable under the image rights agreement as part of the negotiations to keep the player at the club for the 2009/2010 season;
20.5. The club did not have the resources to exploit the player’s overseas image rights, even if there had been a market for them;
20.6. The club had no real interest in commercially exploiting the player’s overseas image rights, there was little prospect of it doing so and, indeed, those rights were never commercially exploited, before, during or after the player’s spell at the club;
20.7. The club had not established that the player’s overseas image rights had any commercial value, and nobody at the club could reasonably have believed that they did;
20.8. Nobody at the club ever considered whether it was realistic to consider that the club could commercially exploit the player’s overseas image rights.
21. The current state of suspended play by HMRC is therefore merely a first-half drinks’ break before the resumption of the main match.
Kieron Beal QC
 See, for example, the Competition Act 1998 (Groceries) (Coronavirus) (Public Policy Exclusion) Order 2020.
 The Competition Act 1998 (Health Services for Patients in England) (Coronavirus) (Public Policy Exclusion) Order 2020 (SI 2020/368).
 RFU Arbitration, 29 June 2012.
 See, for example, Pham v. Secretary of State for the Home Department  UKSC 19,  1 WLR 1591, per Lord Carnwath at ; and Lord Mance at -.
 Article 108(3) TFEU and Article 3 of Council Regulation (EU) 2015/1589 of 13 July 2015 laying down detailed rules for the application of Article 108 of the Treaty on the Functioning of the European Union, OJ  L No 248, 24.9.2015, p.9.
 See the judgment of the CJEU in Case C-261/01 Van Calster  ECR I-12249. There is also a possibility for the Commission to sanction of aid retrospectively back to the commencement of the measure: Case C-384/07 Wienstrom GmbH  ECR I-10393, CJEU at  to .
 See generally the article by Helen Adams of BDO in the Tax Journal:
 See in particular the article by Osborne Clark at https://www.taxjournal.com/articles/covid-19-the-tax-fallout.
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/873538/Consultation_document_Notification_of_uncertain_tax_treatment_by_large_businesses.pdf. This would be a significant advance beyond the General Anti-Abuse Rule in Part 5 of FA 2013 and Schedules 43 to 43C.
 This is something of a retreat from a less qualified acceptance of Image Rights Company arrangements in Sports Club plc and others v Inspector of Taxes  STC (SCD) 443, SC.
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