It is no secret that the NFL is king here in the United States, and it is also readily apparent that Roger Goodell and the owners want to expand their brand into new and untapped markets. Since 2007, NFL teams have played regular season games in London as part of the league’s International Series, with the Jacksonville Jaguars going so far as to agreeing to play one “home” game in the British capital every season through 2016. The general consensus is that the International Series serves the purpose of generating and gauging fan interest in a London-based team.

However, the reality is that the NFL faces substantial hurdles, one specifically being in the form of higher UK taxes, on its effort to establish a London team and a financially viable and competitive product.  For the players and employees of a London-based team, their additional UK tax liabilities would be compounded by the unduly complicated tax filing requirements for maintaining their professional and personal livelihoods in two countries. 

From an economic perspective, the NFL is big business, a model of financial parity and profitability.  Hard salary caps (and floors), revenue sharing, astronomical multi-year TV contracts, and favorable tax treatment are all factors in building the seamless financial juggernaut that is the NFL. The United Kingdom’s financial and economic systems are tied however to a larger network between the 28 member states of the European Union. The reach and influence of the US economy on the rest of the world is significant, but the EU plays by a different set of rules. For the readers who managed to get through my first article and comprehended the complex labyrinth of rules that is the American tax system, prepare to enter the final frontier of taxation, as we will be wading into international waters.

The Long Arm of the IRS

The United States imposes a hybrid residential and status-based universal tax jurisdiction, making it the singularly most punitive and furthest reaching system in the world, at least among economically developed countries (Eritrea is the only other with a similar structure). The US taxes its resident citizens and resident aliens on their worldwide income, meaning both local(domestic) and foreign(international). Nonresident aliens living and working here temporarily are subject to U.S. tax only on local income. By using residency, which is determined by the amount of time physically spent in the US during a given period, the IRS determines what income is subject to taxation.  The additional status-based jurisdictional provision, which makes our system unique (and in some eyes unfair), imposes taxes on nonresident citizens (and permanent residents) on their worldwide income, i.e. a U.S. citizen could permanently leave and never set foot again on American soil, but as long as they maintain their U.S. citizenship they will have to pay their “fair” share to Uncle Sam.

Go forth and travel: the UK tax system 

The UK enforces a residence-based tax jurisdiction, so the main distinction from the US system is that they do not tax their nonresident citizens on foreign income, e.g. an American soccer player living and playing year round for a German professional team would have to pay U.S. taxes on his Germany-sourced salary, but a Brit playing for the same team would not have to pay taxes to the UK on the same salary income. This jurisdiction structure allows (and even encourages) British athletes and entertainers to leave behind the UK to reside and work in other countries while maintaining their British citizenship, all without having to pay any taxes on their foreign (non-UK) income. If an athlete spends more than 183 days in a given tax year, maintains a home, or worked on a full time basis over a one year period in the UK, they would automatically be treated as a resident under the residence test. To complicate things further, the UK distinguishes residency from domicile, so a taxpayer can be deemed a UK resident, UK domiciled, or both, and all subject to different tax treatment. So why does residency matter?

Following in line with the rest of Europe, the UK’s socialist-oriented economic policies mean higher tax rates generally across the board than here in the States. The most relevant numbers are 39.6 and 45, which are the highest marginal income tax rates for US and UK resident taxpayers, respectively. 5.4 percent may not seem like a big number, but can quickly become a significant amount considering the millions of dollars athletes earn annually. As a whole, and particularly for high income earners, UK taxpayers bear a greater proportional tax burden on their gross personal income than their US counterparts.

UK Residency: An Arm and a Leg

If the UK deems an athlete a UK resident, they would then be subject to UK taxes at resident tax rates, which would be an unfavorable situation given the high rates and the potential classification as a dual-resident of both the US and UK for tax purposes. Dual-residency, despite its exotic sounding appeal, is an unwanted tax status, and should be avoided at all costs if possible. In theory, the athlete would face double taxation and be required to pay income taxes at resident tax rates to both the US and UK. That would mean paying a combined 85 percent in taxes on their gross income.* Yikes!    

To mitigate the effects of double taxation, many countries have tax treaties in place with other countries. The US and UK have such a treaty in place, and allows a US taxpayer to take a credit on his US return for taxes paid to the UK. 

To understand what this all means, let’s run through two hypotheticals for an athlete playing on a London based team. In the first hypothetical we are going to examine the impact of an athlete paying UK resident taxes at a rate lower than what the US imposes.  In the second hypothetical, we will assume that UK rates are higher than US rates.  For both hypotheticals we will assume the athlete maintains his US citizenship. The reason for this is an American citizen playing for a London-based team must pay US taxes on his worldwide income, which would include his salary for playing football both in the UK and US. And other factors that could further affect this analysis, including US resident state income taxes, and payroll taxes in the form of Medicare and Social Security in the US vs. the UK’s equivalent in National Insurance payments, have been disregarded, as we will focus strictly on national government level income taxes. 

Example 1:

A dual-resident athlete earns $10 million playing football in London, with effective tax rates of 35% for the UK and 40% for the US.  The athlete would have to pay $3.5 million ($10 million x 35%) in taxes to the UK, and the US would demand $4 million in taxes ($10 million x 40%).  The US however would reduce the $4 million tax bill by the $3.5 million paid to the UK, with a final amount due of $500k.  In the end, the athlete ended up paying $4 million in taxes, with $3.5 million going to the UK and $500k to the US.  However, in all likelihood the UK tax rate will be higher than the US rate, leading to a different end result from the example just provided. 

Example 2:

Using the same $10 million salary, now let’s assume effective tax rates of 45% for the UK, and 40% for the US, which are in line with the actual highest marginal income tax rates for each country. The athlete would then pay $4.5 million to the UK, and the IRS would again demand $4 million.  But the $4 million tax bill to the IRS would not be reduced by the $4.5 million in taxes paid to the UK. An important aspect of the foreign tax credit is that the credit is limited to the amount of US taxes on the income in question. So in this case because US taxes were $4 million, the credit would be limited to $4 million, and not the $4.5 million paid to the UK. 

To summarize, in both hypotheticals we assumed identical gross income numbers and US tax rates, but in the second hypothetical with the higher UK rate, the athlete paid an additional $500k in total taxes ($4.5 million vs. $4 million) with no relief from the IRS.  In reality the calculation of the foreign tax credit is a much more complicated analysis, but the takeaway is that higher foreign tax rates generally lead to an unfavorable result for a US taxpayer.

You Will Pay Her Majesty

For UK non-residents under current UK tax law, and absent a tax amnesty agreement, a payor is required to withhold 20% on gross income from UK related business activities. So assuming an athlete avoided UK resident status, the 20% tax withholding would represent their final tax liability to the UK. However, both the athlete and the HMRC (the UK equivalent of the IRS) could revisit the situation at the end of the year. The athlete could elect to claim a refund for overpaid taxes or the HMRC could demand additional payment due to insufficient tax withholdings. 

The Foreign Entertainers Unit (FEU) of the HMRC specializes in administering and enforcing UK tax regulations of non-resident entertainers and sportspersons. Historically, the FEU has granted relief in the form of tax amnesties on specific sporting events such as the Olympic Games and Commonwealth Games, effectively exempting any taxes on non-residents for income, including sponsorships and endorsements, related to their appearance and participation in a sporting event. The HMRC does not however issue amnesties for sporting events generally unless they are historic and non-recurring in nature, so annual sporting events, such as the Wimbledon tournament, expose its participants to the UK’s tax jurisdiction.  

In all likelihood, players and employees of a London-based NFL team would not receive a tax amnesty and would be exposed to the UK’s standard tax system. Another form of relief could potentially come in the form of an Advance Ruling Application (ARA), a bilaterally agreed upon projection of UK based income and expenditures, with the end result a specialized tax rate for the income at question. If granted, a taxpayer covered by an ARA would pay a calculated tax rate presumably lower than the standard 20% for non-residents.

So what does all this mean for a London team? 

Given their economic clout and backing, it is possible that the NFL would come to an agreement with UK tax officials to shield their employees from any punitive tax treatment. At the same time, it is also conceivable the UK would balk at granting any favorable treatment. If the UK declined to grant any exceptions, a London franchise and its employees would find themselves in an unenviable position of complying with UK tax law, a factor which could discourage players and employees from buying in. The UK and the NFL may be happy to hold two or three games a year in London as a showcase of novelty and spectacle but having a permanent operation is a far riskier venture. And although it’s been mentioned ad nauseum, it’s a bit puzzling quite frankly that the NFL is looking to London when Los Angeles still doesn’t have a team of its own.  So what’s the final takeaway?  Well, if the NFL does decide to stake its claim on British soil, they will undoubtedly want to do one thing before they do so, just as we all should before making an important business decision:  Consult their tax professional.

Michael Pak is a tax accountant, lawyer, and business manager at Freemark Financial LLP, he can be reached at

*Note: The highest ever marginal tax rate in the US was 92% in 1952 & 1953, and the French Government recently enacted for 2013 & 2014 a 75% marginal rate on annual salaries above one million euros, the caveat being the tax would be paid by the employer and not the employee.