Tax red flags loom as Fifa U-17 World Cup kicks in on October 6

The coming Under-17 FIFA (Fédération Internationale de Football Association) World Cup in India will not only be followed by football fans around the world but also by Indian tax officials, expected to keep a close watch on the three-week event in October.
 
This follows the Supreme Court (SC) judgment last week that held the Formula One World Championship (FOWC) in motor racing liable to be taxed in India for the F1 Grand Prix event.
 
“FIFA can be held to similar tax liability as they have a similar pattern of selling promotional rights, getting playing fields as per international specifications, selling merchandise and broadcasting rights and carrying out inspection, among others. There will be big revenue generated in India and it makes a case for tax liability,” said a senior tax official, adding, “We will closely watch how the event is organised.”
 
The tournament is on October 6-28 at six venues, with the final at Kolkata. It has been hinted that if the competition is a success, India might bid for the U-20 World Cup and FIFA Club World Cup. FIFA is known for seeking comprehensive tax exemptions for the tournaments. Not only for itself but also for the parties involved in hosting and staging the event, the sponsors and the players. Citing confidentiality of agreements, it declined to comment on a detailed questionnaire sent by this newspaper.
 
Another official said as long as there was regularity in the event and a geographical location with a real-time agreement, it must be taxed in India. “It doesn’t matter if your agreement was signed outside the country or income is being remitted to an overseas account. We have to see where is the income arising and accruing, directly or indirectly, and conducted wholly or partially from that location. It is taxable in India.”
 
The tournament host, India, automatically secured a place in the competition. It is the first time an Indian team will play in a FIFA competition. The tournament will start in Delhi and Navi Mumbai. The quarterfinals will be in Goa, Guwahati, Kochi and Kolkata, while Guwahati and Navi Mumbai will host the semifinals. Each venue will host at least eight matches.
 
In the motor racing case, it was the first time in the history of tax litigation in India that a sporting event’s venue (a car race circuit, in this case) was held to meet the definition of a fixed place, permanent establishment (PE) of an assessee. A PE is defined as a fixed place of business which generally gives rise to income or value-added tax liability in a particular jurisdiction.
 

“FIFA might also come under the tax net, going by the SC judgment, for having control over physical space in India for the days of the tournament, to give a look and feel of FIFA and granting sponsorship and broadcasting rights. If FIFA adopts a similar structure as FOWC, the judicial precedent will apply to FIFA,” said Amit Singhania, partner, Shardul Amarchand Mangaldas & Co.
 
“The F1 verdict is expected to impact the taxability of other global sporting events being conducted by foreign agencies in India, the most recent in picture being the coming FIFA World Cup or ICC cricket events in India,” said Rakesh Nangia, managing partner, Nangia and Co. He added that the
 
SC decision was not a conclusive verdict — whether FIFA would be taxed in the same manner as FOWC would depend on how the events are organised and what would be role, rights, responsibilities and manner of the international agencies while conducting these events in India.
 
Another tax official said the SC judgment will create a lot of interest internationally, as FOWC had argued that it conducted events in 22 jurisdictions across the globe and was not taxed anywhere. In earlier events, FIFA is reported to have sought exemptions encompassing all revenues, profits, income, expenses, costs, investments and any payments, in cash or otherwise, including through the delivery of goods or services, accounting credits, other deliveries, applications, or remittances, made by or to FIFA and/or FIFA subsidiaries.
 
Reports suggest that on the conservative side, Brazil lost about £145 million to tax breaks for World Cup sponsors in 2014.