The world’s best footballers tend to earn jaw dropping sums of money, and their tax affairs tend to be complex, to say the least. In the past couple of years, in Spain, several, including Lionel Messi and Cristiano Ronaldo, who play for Barcelona and Real Madrid respectively and together share the mantle of “world’s best footballers” have tangled with the Spanish tax authorities over undeclared income.

Both have been convicted of “hiding” earnings within “image contracts”, and have respectively coughed up a reported $8.75m and a whopping $21.7m in fines, in exchange for a suspended jail sentences as opposed to a spell in a Spanish prison.

Now that he is moving to play for Juventus in Italy, however, Ronaldo will no longer have to worry about being pursued by the tax authorities over his income from image rights. The Italian government has recently introduced a rule that allows non-domiciled individuals residing in Italy to pay a one-off lump sum of around €100,000 to cover all tax on their worldwide earnings. In Ronaldo’s case his lucrative image rights and publicity contracts are administered by companies outside Italy, often based in offshore locations. According to a recent article in the Times, this arrangement should therefore save Ronaldo in the region of €11m per year.

Where did the Italian authorities come up with the idea for such a treatment of overseas earnings? From the British. In the UK, the right for non-domiciled residents to avoid paying tax on their overseas earnings has been enshrined since 1799, when it was introduced by King George the Third to protect those with property overseas from war taxes.

Ever since, non-dom status has regularly come under scrutiny. Why, the thinking goes, should somebody who is resident in the UK most of the time pay no tax on their overseas earnings or overseas assets?

It is not quite as simple as that. Non-doms have the option to pay tax on their overseas earnings in one of two ways. On an arising basis: whereby all an individual’s worldwide income and gains will be taxable in the UK; or on a remittance basis; whereby the individual is only taxed on money that they remit back into the UK from overseas.

If a taxpayer chooses the remittance option, there is a remittance basis charge to pay. £30,000, if the UK-resident non-UK domicile has been UK-resident for at least 7 of the previous 9 tax years, £50,00 if its 12 of the previous 14 years, and £90,000 for 17 of the previous 20 years.

So, provided they do not remit the money back into the UK in the tax year or any subsequent tax year, in theory a non-dom could pay just £30,000 tax on earnings of many millions, and every non-dom pays the same, no matter whether their overseas earnings are £100,000, or £100 million.

A recent government paper referred to a statistical survey of UK non-dom taxpayers, which revealed that:

“In 2014/15 there were 121,300 non-domiciled UK taxpayers, paying a total of £9.3 billion in income tax, NICs and capital gains tax. Of these, 54,600 were UK-residence and were taxed on the remittance basis. Of those non-domiciles taxed on the remittance basis, 5,100 individuals were liable to pay the remittance basis charge in 2014-15. This group paid £1,393m in income tax, £304m in NICs, £129m in capital gains tax, and £226m in remittance basis charges.

Non-dom status is certainly a quirky piece of tax legislation and debate rages about its place in the modern world. In a recent article for Left Foot Forward, Prem Sikka, Emeritus Professor of Accounting at the University of Essex, argues that non-dom status is a “ colonial relic and should be abolished”.

On the other hand, some argue that non-dom status attracts wealthy and influential people to UK shores; Roman Abramovich, for example, is a non-dom, as are Mick Jagger, racing driver Lewis Hamilton, and entrepreneurs Richard Branson, James Caan, banker Stuart Gulliver and Tory Party Donor Lord Ashcroft.

In the past, the Labour government has pledged to end non-dom status altogether, whilst in 2015 Chancellor George Osborne abolished the right to permanent non-dom status in a move that was expected to raise around £400m in extra tax income.

The arguments on both sides will  no doubt continue. The charges for using remittance basis, introduced in 2008 by the Labour government, and increased by the Coalition government in 2011 for those who have been resident in the UK for longer, seem unlikely to stem the tide of public opinion for long.

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