TAX ISSUE IN SPORTSMalaysia.Clubs, associations or similar institutions are formed not for commercial purposes but for social, recreational, sports, arts, science, literature or other purposes for the interest and benefit of their members. Examples of such clubs, associations or similar institutions are an athletic club, an antique car collectors club and a historical society. However, the activities of some clubs, associations or similar institutions are trade dealings which are run for a profit that is subject to tax as business profits. Examples of such clubs, associations or similar institutions are a fitness centre or a professional football club.In order to distinguish whether a body of persons carrying on a club, association or similar institution is a trading/business enterprise or run for the benefit of its members, the ownership and membership of that body of persons and its dealings have to be examined as follows:(a) If the ownership of that body of persons is different from its membership, the club is likely to be a trading enterprise. On the other hand, if a club, association or similar institution is established and owned by its members for the benefit of its members, this would mean that all the assets belong to the membership which controls the club and its dealings. Such control may be exercised through an elected committee. (b) Transactions with members are not considered as trade dealings. Any surplus of receipts over expenditure in respect of income from transactions with members must be used for the benefit of all the members of the club, association or similar institution (e.g. to buy new equipment or to pay for social occasions open only to the membership). However, when a club, association or similar institution provides its facilities (e.g. restaurant, golf course) to non-members on a commercial basis, it is deemed to be carrying on a trade and income from trading with non-members is taxable.

Taxability of Clubs, Associations Or Similar Institutions;Prior to the year of assessment 2009, there was no specific provision on the tax treatment of clubs, associations or similar institutions. Clubs, associations or similar institutions have been subject to tax based on the following general taxation principles:(a) members fee and income from transactions with members are not subject to tax based on the principle of mutuality; and(b)income derived from transactions with non-members is subject to tax.

With effect from the year of assessment 2009, section 53A of the ITA 1967 was introduced to enhance the transparency in the tax treatment of clubs, associations or similar institutions. This provison applies to clubs, associations or similar institutions which are established and controlled by its members and not run for business purposes.

Tax Treatment of Clubs, Associations Or Similar Institutions;Income from transactions with members Clubs, associations or similar institutions are run either for the benefit of their own members, or for the wider public good. If a club, association or similar institution is meant for the benefit of members only, any income arising from mutual dealings with the members is not subject to tax. Examples of mutual receipts from members of clubs, associations or similar institutions include entrance fees and member subscriptions; drinks and food sold at the clubs, associations or similar institutions bar /restaurant to its members; and amounts paid by members to attend a talk, presentation or workshop organised by the clubs, associations or similar institutions.Such income and any expenses or capital allowances attributable to such income is to be disregarded for the purposes of the ITA 1967 pursuant to subsection 53A(2) of the ITA 1967.

Income from transactions with non-members (a) Although a club, association or similar institution is generally formed not with the aim to make profits, it may receive income from activities or transactions with non-members which are taxable income. Examples of such receipts include proceeds from fund raising drives to the public, e.g. sale of cookies or handicraft; drinks sold to non-members visiting the club; fees received for hiring out of the clubs hall, facilities or equipment to the public; amounts paid by non-members to attend dinners or social functions organised by the club. (b) The spouse and parents of members of clubs, associations or similar institutions are considered non-members. Therefore, income derived from transactions with spouse and parents of members is subject to tax.

Income from investment and external sources (a) Income from investment of clubs, associations or similar institutions such as interest, rent, dividend being non-mutual receipts is taxable. (b) There may be clubs, associations or similar institutions that enter into arrangements with external parties under which the external party conducts or provides particular operations on the premises of the club, association or similar institution. These arrangements with the external parties may include installation of vending machines for drinks, catering, restaurant, bar, gymnasium and entertainment. (c) If the clubs, assciations or similar institutions enter into such an arrangement with the external party, the income derived by the external party from the patrons of the above mentioned facilities is in accordance with the contractual arrangements. The amounts paid to the clubs, associations or similar institutions by the external party for operating on their premises is income derived by the clubs, associations or similar institutions from external sources and not from members/non-members. Therefore, such income is fully taxable to the clubs, associations or similar institutions.

Tax RatesThe taxable income of a club, association or similar institution is taxed at scale rates that are applicable to individuals as in Paragraph 1, Part I, Schedule 1 of the ITA 1967. Clubs, associations or similar institutions are not eligible for personal reliefs that are applicable to individuals when computing their chargeable income.

Record KeepingAll clubs, associations or similar institutions are required to keep separate accounts in respect of income derived from transactions with members and with non-members. Records that distinguish between member and non-member functions have to be kept if clubs, associations or similar institutions do not have a limitation on dealings with non-members.

Filing Of Income Tax Return FormsClubs, associations or similar institutions in Malaysia are required to file an Income Tax Return Form (ITRF) i.e. Form TF for each year of assessment. The ITRF should be furnished to the Director General of Inland Revenue on or before 30 June in the year following that year of assessment.

In Malaysia, sports are under the concurrent list of State and Federal legislation. All sports association must register to Sports Development Act 1997 to do sporting activities. The Football Association of Malaysia (FAM) is registered association under Sports Development Act 1997 that enable her to receive annual fund and financial grant from the Malaysian government. The Malaysian FA (FAM) is not a body corporation under the Companies Act 1965 and as a private body, the relationship of the members (players and administrators - member affiliates / clubs) is based on contractual relationship.

The issues of non-payment of players financial welfare are seriously discussed. Most of the clubs failed to settle their debts towards players financial welfare totalling about RM1.2 million RM833, 793 for EPF, RM101,526 (Socso) and RM365,895 (income tax) in year of 2012. The imposition of sanction is well illustrated in the FAM Regulations, however the execution of the regulations is not strictly adhered.

In the event that clubs do not pay players' wages or failed to make contributions to the Employees Provident Fund (EPF) and Social Security Organisation (SOCSO), or fail to pay regular income tax to the Inland Revenue Board for a minimum of one (1) month or player complain to the FAM or upon investigated by FAM and found to be true, then the player may terminate the Contract unilaterally and inform in writing to the FAM.

With the rare exceptions of Nicol David and Lee Chong Wei who are presently the world's top-ranked players in squash and badminton respectively, the Malaysian market is not ripe for local athletes and celebrities to attach astronomical values to their image. Notwithstanding the same, the law does provide protection for such rights, regardless of its value.

Although there is no law which confers a statutory right on an individual to control the use of his image, it is submitted that the legal doctrines applied in the United Kingdom for the exploitation and protection of image rights are generally applicable in Malaysia, except for the right of privacy which is provided under specific legislation in the United Kingdom.

Prizes are normally subject to tax as earnings. Prizes are normally subject to tax as earnings where the individual participates with the prize in mind. In a more pragmatic approach where occasional prizes are received, etc in form of trophies where the value is not substantial and as such, tax may be avoided. In England, ever since an international footballer succeeded in justifying his claim not to be taxable on payments from English Football Association and a third party following his performance in World Cup 1966, prizes are not always taxed; case in point is Moore v Griffiths (1972) 48 TC 338.

For sponsorships, normally, the arrangements will be evidenced in writing, usually in the agreement between the individual and the sponsors, and it will be taxable as part of the individuals total income from sport. Some sponsorship may be taxed as employment income under the contractual arrangements entered into, but this is unlikely to be common. Tax relief may be available either by way of an expenses claim in the case of sportswear or by way of capital allowances if equipment is provided.

EnglandIn the English Premier League, football players may include in their contracts with their teams provisions which provide for the exploitation of image rights which may or may not necessarily include the rights to sponsorships and endorsements. Generally players let the club use their image under license in exchange for an annual payment.

It has been reported that this payment goes into the player's 'image company', many of which are based offshore, prompting investigations by the UK Inland Revenue Board as the money may be finding its way back to the players as a tax-free bonus disguised as income.

At times, players may reserve the right to exploit their image rights to endorse products themselves. For example, Fernando "El Nino" Torres has a boot-sponsorship deal with US sporting goods giant, Nike, whereas his team Liverpool is sponsored by their German rival, Adidas.

Unquestionably, sports personalities and other celebrities seek to protect the value in their image rights through various legal mechanisms, rooted in the belief that these are legitimate proprietary rights derived from their own name, likeness, personal attributes, style characteristics, nicknames or slogans associated with them.

There is no legislation in the United Kingdom which recognizes a statutory right of an individual to control the commercial use of his image.

The primary basis for the commercial exploitation of an individual's image lies in the contract. In sponsorship and endorsement deals, the personalities grant an exclusive license to the advertiser to enhance the reputation of their products or goods due to the association with the star while they are compensated through royalty payments for the right of the advertiser to exploit their image.

Fees or royalties received in relation to the use of image, name or logo, count as taxable income. Usually services are provided as well in which as event costs associated with their provision may be deducted in arriving at the profit from the sporting activity. In the case of an employed sports person carrying on self-employed activities outside the employments, care is required in connection with ownership of image rights since employer may argue that such rights in connection with duties for the club belong to it. exploited by the individual and taxed under the more favorable self-employed rules or through a personal service company.

VAT IN SPORTS (England); The liability of a taxpayer in this regards can be determined by a persons domicile, it is where an individual belongs rather than where he is resident at any time. Certain income of individual resident but not domiciled in the UK, etc will not be liable to UK tax unless remitted back to UK. If income is not remitted back to UK then it is not taxed.

A resident sportsman earning income from abroad enjoys no special reliefs from UK tax whether employed or self-employed. He may have exposure to tax overseas since generally the double tax treaties which the UK has negotiated with foreign countries do not provide relief for sportsman and entertainers.

For the taxation of earnings; particular sports rules may dictate the way in which the sportsman pays tax. Hence in professional football in England the rules of Premier and Football League and the Football Association specify a standard form of agreement for professionals that must be entered by the sportsman. This contain terms relating to the expiry of contracts, earning, and out-of-pocket expenses. Football rules effectively means that professional footballers as employees. Often, other professional team sports have similar provisions.

Self-employed requires the individual to be independent of the person engaging him. Typically the status will apply to sports where the individual competed on his own and not as part of a team. This generally accepted by HM Revenue & Custom but the situation may be determined under the contractual relationships specified under the sports governing body rules. Most sports people participating in team sports who are remunerated will be regarded as employees because of the element of control required by the team club. Where they also have external commercial income, their tax affairs are likely to be complex as well.

Inspectors of HMRC are often keen on sports. In addition to their personal interest in sport, tax authorities have formalized their approach to dealing with it. Thus for example a special unit in HMRC Special Civil Investigation Office deals with professional sports.

Tax is an issue for professional and amateur clubs. If sources of income are within the tax statutes, whether for corporation tax or VAT purposes, they will be taxable no matter how the organization is run or the income is applied. Even relatively casual fund-raising, such as dinner dances, beer and jazz festivals run to raise funds for the club can be subject to tax. Exception to this rule are where the organization is a charity or community amateur sports club for which tax exemptions are available.

Where sports person works outside UK, since there may be a requirement to register overseas for VAT or the equivalent sales tax. There are also special rules where royalties are paid from a transfer or assignment of a copyright or from the granting of a license to use a copyright.

Sponsorship also a difficult area and should be distinguished from true donations for VAT purposes. A sponsorship arrangement will usually be evidenced by a contract and great care is required to ensure that the sports person does not lose out from a VAT perspective. There should be an appropriate VAT clauses in such contracts. It should be remembered that it is the individuals responsibilities to charge VAT if he or she should be registered and is providing a taxable supply. Failure to charge VAT will mean the cost will be picked up by the sports person not the customers or clients.

Governing bodies and leagues may have rulings from HMRC regarding income received centrally from sponsorship, broadcasting and other commercial agreements. Such income on distributions to sports clubs may be outside the scope of VAT.

Sponsorship income is normally received in the expectation of doing something in return eg advertising. In those instances, VAT should be charged by the club to UK supplies of sponsorship. However, where sponsors belong outside the UK, the supply may be VAT free. Sponsorship may include an element of business entertainment eg hospitality. In such circumstances the VAT incurred by the sponsor will not be recoverable as business entertainment. Goods and services may be provided free of charge under a value-in-kind agreement, ie the club receives goods or services in return rather than payment. For VAT purpose, this arrangement results in both parties making supplies and VAT must be accounted for on the full value of those supplies by both parties as a general rule. This is often overlooked by sports clubs and sponsors alike.

Sports clubs may incur overseas VAT costs eg travel and accommodation as result of tours, European or international matches. It may be possible to recover such VAT under special refund procedures. Subject to certain conditions, VAT incurred in other countries can be refunded periodically, provided the sports club is not registered or liable to be registered for VAT in those countries.

Many individuals help out at clubs and players can play for the love of the game. Expenses payments are made to cover genuine travel and other expenses and HMRC may agree that individuals play for the love of the game. In this event, it will not regard them as employees because no money is made out of their participation. Football has agreed this approach with HRMC in relation to non-contract players in semi-professional football. However this will only succeed where there is no contract of employment with the player concerned and the payments do no more than reimburse actual costs computed on reasonable basis. Leading individuals in particular sports will be taxed on their earnings from those sports but the many who participate as leisure, pursuit or hobby will often escape tax.

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