Massively unpopular French President Francois Hollande has brought his “Super Tax” into reality after France’s Constitutional Council approved the payroll tax measure on high earners.
Originally meant to be a 75% tax directly on high income citizens who earn more than €1 million annually, the approved tax is quite different from its initial conception. The approved tax applies to companies rather than individuals, it is 50% rather than 75%, the tax is capped at 5% of total company revenue and it is only in effect for 2013 and 2014.
Through out the year this tax has brought about some high profile reactions including the threat of all Ligue 1 clubs boycotting a scheduled gameweek as well as a group meeting of numerous club presidents and the tax’s architect, French President Francois Hollande.
Close to 470 companies will be subject to the law once it is in effect and while Ligue 1 clubs will not be the only companies affected by the tax, they certainly have been the most highly profiled and discussed. It has been hailed as the death of French football as it is believed that it will likely result in an exodus of the country’s most talented players with clubs looking to raise money to pay for a tax that had not been budgeted for.
One of the more interesting caveats to the law is that the tax is capped at 5% of revenue. A common figure for the impact that this will have on the French economy that has been discussed is an annual total around €210 million, with Ligue 1 clubs contributing €44 million of it.
Clubs will obviously have their own in-house projections for revenue and it is difficult to predict the exact amounts that clubs will have to pay. With most player salaries not publicly available it is also difficult to tell exactly how many players each team will be paying an additional premium to remunerate.
What is public information though is each club’s financial information. Every season the LFP releases every club’s financial information, which includes the clubs’ revenue. While much of the information needed to get an exact picture of the financial impact this tax will have is not readily available to the public, with the 5% cap known and revenue figures public, Business of Soccer is able to very simply asses potential maximum payments clubs would have to make.
Using the most recently available financial data, which is from the 2011/12 season, these are the maximum figures that each club would have paid based on the 2011/12 season revenue figures.
The teams represented are only the teams still competing in Ligue 1 currently from the 2011/12 season. While the report does give information down into Ligue 2, revenue increases with promotion was a factor too big to simply ignore and force the exclusion of promoted clubs in this assesment. AS Monaco would also not be included because they are not subject to the French tax structure.
Two important things to note about this data is that it assumes that each club hits the 5% cap when in reality a club could potentially only have 1 or 2 players on €1 million + salaries and the amount above €1 million (the taxable amount) isn’t very large, which would equate to a very low contribution. The other important note is that while these figures are based on overall revenue, more than half of these clubs in the 2011/12 season showed losses on the year.
As expected, Qatari-owned PSG would pay the highest tax, but what is interesting is that some have estimated their expected contribution figures to be around €20 million. While the above data is from 2 seasons ago, PSG’s revenue would need to double in order for the 5% cap to reach €20 million.
Another interesting observation is that if each club hit the cap, no club would pay less than €1 million. Many club presidents have claimed that they would need to sell players to raise the money to pay the taxes. While many high profile player signings in recent years have reached the teens, 20’s, 30’s even 40’s of millions, there are still hundreds of player transfers that never break the €1 million mark which means many small clubs could possibly need to sell multiple players.
Ironically, if these clubs sold their more valuable players, they more than likely would be getting rid of the players that are forcing them to pay these taxes.
Overall, the numbers seem relatively small when thinking about companies big enough to pay these salaries but they are still large enough to dramatically impact club budgets. In addition while this tax could have potentially been accommodated for, clubs do have a valid argument that most players already on these now taxable contracts were signed obviously without the knowledge of any risk to offering a +€1 million salary.
Once again, these numbers are simply the maximum potential tax figures based on 2011/12 season data and do not represent current revenue figures for these clubs. It is almost certain that these numbers have changed and more than likely that revenue has increased but it is very difficult to know until the data is published. These figures do however show that even 2 seasons ago, potential tax revenue for one year from 15 clubs reached over €50 million.
This may be a pittance for the state’s overall deficit, but that figure dwarfs many of the clubs’ revenues for that season. This tax has been described as “highly symbolic” due to the fact that it only lasts two years and would not generate enough to really reduce the deficit, but the money involved is much more than symbolic for smaller clubs competing in Ligue and looking to stay there.