New figures have illustrated the full financial impact of the 50% tax band and fluctuating exchange rates on the summer transfer window, revealing that the cost of an overseas player to English clubs is up to 70% higher than to their Spanish contemporaries.
According to analysis by the Deloitte Sports Business Group, which compared the tax situation in the UK with those in Spain, Italy, France and Germany, the two factors were having an effect on the ability of the biggest clubs to attract the top-earning players.
The 50% tax rate will come in next April, and Deloitte said that a combination of an increase in the top rate and currency fluctuations means that many European Premier League players would see pay decrease by a third.
According to agents, most marquee signings will simply demand that clubs make up the difference so that the players receive the same net wage. In other cases, where clubs refuse to make up the difference, players are increasingly likely to opt for Spain or elsewhere in order to relieve their tax burden.
Additionally, European players are increasingly asking to be paid in euros, forcing their clubs to carry the burden of fluctuations in the exchange rate.
According to Deloitte's figures, for a Premier League club to pay a European player a net salary of €3m (£2.59m) would cost them €6.8m, taking in the new tax band. In contrast, a Spanish club would have to pay the same player €4m to deliver the same net salary.
Given Real Madrid's summer spending spree and the £80m switch of Cristiano Ronaldo from Manchester United to Real, the twin financial forces have contributed to the debate over whether the Premier League has been overtaken by La Liga as the preferred destination for the biggest players.
"The transfer window opened over a month ago, but Premier League clubs are yet to make significant acquisitions from overseas. Real Madrid have already spent a reported €200m on three players from other big European Leagues [Cristiano Ronaldo, Kaka and Karim Benzema] but we have not yet seen a significant influx to the Premier League," said Pete Hackleton, a senior manager with the Sports Business Group at Deloitte.
"The reduced value of sterling against the euro and the proposed increase in the top rate of income tax are contributing factors to this."
The shift also favours English players moving abroad, with the advantageous tax regime widely believed to have been a factor in Jermaine Pennant's decision to choose Real Zaragoza, in Spain, in the wake of plenty of interest after being released by Liverpool.
Under Spain's favourable tax laws, temporary non-Spanish residents are taxed at 24%, with minimal social security contributions, as compared to the top rate of 43% for Spanish nationals. The Spanish Congress last month voted against abolishing the special rate.
Arsenal's manager, Arsène Wenger, has been among those who have highlighted the trend. "The new taxation system, and the collapse of sterling, means the domination of the Premier League will go," he said. "That is for sure. It will be a financial problem for all the English clubs."
But Hackleton said the strength of the Premier League's broadcasting deals and redistributive rights agreements means collectively the clubs are still in a stronger financial position than their European rivals.
"The lucrative central-broadcasting-rights deals and the relatively even revenue distribution mechanism for those broadcast payments mean the majority of English clubs can still compete for talent with their European peers," he said. "The concern is for the biggest clubs competing for the best talent, where the reduced tax rate in Spain gives the likes of Real Madrid and Barcelona a significant advantage in attracting the best players in the world."
In the 2007–08 season, total Premier League revenues were €2,441m, more than €1bn ahead of total revenues for La Liga. The latest Deloitte review of football finance showed that the Premier League strengthened its position as the most lucrative in Europe during 2007-08, largely as a result of the influx of money from the first year of a new broadcasting deal.
with this tax ruling next year in april, the shift of power will go to La Liga and and maybe Serie A will rise again.
stupid government policies. hope the government voted out of office next year and new government formed to abolish this stupid tax policy.
Its quite obvious with most players now snubbing EPL.
i've said it a few posts back ..... this tax system will ruin the standard of football in England .
Either u pay very high wages , or u lose out .
Lol, next time starhub broadcast more of la liga instead of epl liao.