Is Paying Cards A Sport?

What is a sport?

You and I have probably encountered that shiny-sparkly when discussing NASCAR.

But can it have a tax angle?

Oh, grasshopper. Even circles take on angles when you tax them.

Let’s travel to the UK. Their 2011 Charities Act defined sports as “activities which promote health involving physical or mental health or exertion.”

Introduce Sport England. They distribute National Lottery funding to encourage people to be more physically active. Seems a desirable cause.

It helps to be a sport if you want to tap-into that pot of Lottery gold.

Enter the English Bridge Union.

They want in.

The EBU has battling HMRC (that is, the British version of the IRS), arguing that entry fees to bridge tournaments should be exempt from VAT (“value added tax,” a sort of super sales tax). HRMC in turn looks to Sport England when developing its regulations. The EBU argued that the “physical or mental health or exertion” wording in the 2011 Act does not require physical activity.

But that is not Sport England’s position. They argue that the goal of sports is to increase physical activity and decrease inactivity.  That is not to argue that activities such as bridge do not help with mental acuity and the relief of social isolation; it just means that it is not a sport.

The EBU brought a refund suit against HMRC for VAT paid between 2008 and 2011. The amount is not insignificant: for 2012/13 alone it was over $800,000. The case went before the High Court of Justice of England and Wales.

The Court ruled that Sport England was within its rights to emphasize physical activities over mental and that Sport England could deny bridge status as a sport. Extrapolating, HMRC does not have to refund VAT paid on bridge tournament fees.

But the Court simultaneously added that it had not been asked to answer the “broad, somewhat philosophical question” as to whether bridge was actually a sport.

Seems both sides have a drum to beat following this decision.

By the way, the British courts have a different way than American courts. The lawsuit cost the EBU approximately $150,000. But they lost. They have also been ordered to pay approximately $75,000 to Sport England as reimbursement of their legal expenses.

COMMENT: I like this idea.

The EBU went to the Court of Appeal in London, where they lost earlier this year. They then appealed to the EU courts.

Here is Advocate General Maciej Szpunar of The European Court of Justice determining that bridge is a sport because it requires

… a certain effort to overcome a challenge or an obstacle” and “trains a certain physical or mental skill.”

The Advocate General’s decision will in turn be reviewed by the full Court en banc.

Soon an EU court will review a British tax decision. My understanding is that the British would not have to observe an adverse EU decision, but such a decision should nonetheless carry considerable persuasion.

And the Brits argue what constitutes a sport … because they have decided to tax something unless it is a sport. Well heck, all one has to do is remove “sport,” replace with another word, and we can continue this angels-on-a-head-of-a-pin nonsense until the end of time.

I do sympathize with the EBU. The HRMC, for example, recognizes both darts and snooker as sports, whereas you and I would recognize them as activities played in a bar. Several European countries – Austria, France, Denmark and others – already recognize bridge as a sport. To be fair, there are other countries – Ireland and Sweden, for example – that do not.

Did you know that the International Olympic Committee classified bridge as a sport back in 1998?  

But still…

I have difficulty with the concept of a “mental sport.”

By that definition tax practice – that is, what I do professionally – is a sport. 

Trust me, this is no sport.

Did You Hear That Spain Is Taxing The Sun?

It has been a while since we have played “Are They Smarter Than a Garden Gnome?” Our blog today involves a near-bankrupt government, which pressed the metal to the floor with “renewable energy” and “green” subsidies. It has now taken the preposterous – and possibly first-time-in-human-history- act of taxing the sun.

You think I am kidding. You may also think I am talking about the United States, but I am not. At least, not this time.

We are talking about Spain, one of the sunniest places in all of Europe. It is a likely candidate for photovoltaic and solar-thermal power generation – that is, solar panels. It sounds good on first hearing. That of course is before the government got involved.

In 2007 Spain had 701 megawatts of installed solar panels. I do not know if that is a lot, but I do know that the Spanish government wanted to increase the amount. Not having a Solyndra or Satcon Technology on which to throw away tax money, they decided to push solar power.  That meant that they paid more for solar-produced power than for other power – think coal, hydroelectric, nuclear, air draft from flocks of geese. How much more? Think 12 times more than conventional power. Yipes! The government was unwilling to pass the full cost onto the populace, even though Spanish power producers have some of the highest rates in the EU. The government instead ran up subsidy deficits now totaling 26 billion euros.

Well, they did increase solar power generation. Current production is 4,000MW, which is an impressive increase from 701MW in 2007.  

What could possibly go wrong with subsidizing solar? After all, it is renewable, environmentally sustainable and so forth.  

Well, when you are paying 12 times more than something is worth, you better not buy too much of it. Unfortunately, Spain missed this lecture. The Spanish government has its fingers all into and over its energy industry. There are mandates for clean energy, for idle gas-fired plants, for poor families and for island dwellers. As a consequence, the government is now about 35 billion euro in the hole from its subsidies. To exacerbate matters, Spain is entering its second recession in three years. The government has recently announced spending cuts and tax increases of 100 billion euros. Unemployment has reached 25 percent. Spain, strapped for cash, is now looking to cut back.

What to do, what to do?

Got it! Spain will tax the electricity produced by home solar panels. Homeowners will have to connect their panels to the grid so their production can be metered – and billed back to them, of course. The effect is to make self-generated power more expensive than power purchased from the grid. 

How much more are we talking about for an average Spanish household? Approximately 27 percent more.

Spain’s Industry Ministry justified this action by explaining that – even though you may be self-sufficient – you “benefit” by having the back up provided by the power grid. Not everyone will be affected, however – only those Spaniards living within reach of the power grid. If you live in remote areas, you will be untouched by this.

Oh, well. Maybe you can sell your power back to the grid and offset somewhat this new cost. No can do. Spain will not allow that. You will have to move to Germany if you want to sell your excess power.

What if you refuse to connect to the grid? Spain reserves the right to fine you up to 30 million euros. Yipes! There has been pushback by consumer groups clarifying that this fine was created in 1997 by a law intended for large corporations, not private individuals. Someone will have to take that theory to court, however, to test how sound it is. I can assure you that it would not be me.

The sad part is that there is nothing here that a clear-headed person could not have seen coming from a mile away, or at least since 2007. Every government benefit given in turn is taken from someone else. This is the economics of taxation, and in the end economics won out. The Spanish government is now scrambling to keep all the spinning dishes from hitting the ground.

What do you think: are they smarter than a garden gnome?

The Carrot Rebellion

You may have heard that Spain has gotten itself into an economic mess. In an effort to avoid more stringent EU austerity measures, it has increased a number of taxes. The one that interests us today is the value-added tax. The VAT on selected foods is 4%, whereas the VAT on clothing went from 18 to 21%. The VAT on theater tickets also went to 21%.

There is a village called Bescano in Catalonia. Catalonia is in the northeast part of Spain, adjacent to France, and it boasts a strong separatist sentiment. On September 11, which is Catalonia’s National Day, an estimated 1.5 million people filled the streets carrying signs such as "Catalonia, the next independent state in Europe." A recent poll showed that 51% of Catalans would vote in favor of separating from Spain.

Bescano is a small village, but it boasts an impressive theatre troupe. Problem is that one in four local residents is unemployed, which makes it difficult to sell theater tickets. Increase the VAT to 21% and you have a near-insurmountable problem. What to do?

The theater decided to sell a carrot as admission to the theatre. The carrot costs over $15, but it entitles one to free admission. The VAT on a carrot? It is 4%.

The Spanish media have called this the “Carrot Rebellion,” and there is the expected tut-tuts from government officials. Each person who does not pay his “fair share” raises the burden on everyone else, or so goes the party line. It may even constitute “tax evasion,” says one.

The theater has the support and backing of the local mayor.

My thought? No disrespect to a difficult fiscal situation, but I find it clever.

France’s New 75% Tax Rate

I do not recall ever talking about French taxes on this blog, but this morning I saw something that stunned me.

France has announced a 75% income tax rate.

Now, think about that for a moment. You would be giving-up 75 cents on the dollar, just for the privilege of setting an alarm clock, cutting sleep short, incurring dry cleaning, sitting in traffic and – finally – stressing at work. This move is driven by economic pressures in the European Union. We are familiar with the debt crisis of Greece, but Spain is also facing difficult times. Italy is hot on their heels. Germany is pulling this sled, and France likes to think that it is closer to the lead dog than the rear. Germany allows France to think that.

The EU has restrictions on allowable member deficits, and France is looking to narrow its deficit from 4.5% to 3% next year. It is doing this by raising 30 billion euros. Unfortunately, it seems to have escaped French President Hollande that one way to save money is to spend less of it. Hollande has announced that the money will be used for – among other things – thousands of new civil servant jobs. Brilliant!

The French government has softened the blow by announcing that the tax will be in effect for only two years.

On the other hand, for two years France will have the world’s highest tax rate.

French income tax applies on worldwide income for individuals who reside in France. The key word here is “reside.” Nonresidents are generally taxed only on French-source income. This is not the U.S. system, where a U.S. citizen is taxed on worldwide income, irrespective of where he/she lives. A U.S. expat living in Thailand for the last twenty years is still required to file an annual U.S. income tax return. On the other hand, a French citizen can avoid French tax by not residing in France, although I anticipate that the French tax authorities would aggressively dispute the issue of residence, where possible.

Seems to me that – if I made enough money to be subject to this new tax – I would have enough money to leave France for a couple of years. Why would I work for twenty five cents on the dollar? Short answer: I wouldn’t.