Tax repayment scheme proposed by government would make ‘spoiled children’ of the clubs

A bill which was discussed at the House finance committee on Monday which has been designed with a stated aim of recovering debts from football clubs may in fact reward lawbreaking among the clubs.

Cypriot football clubs currently owe more than €32 million in unpaid taxes and social insurance payments to the state, with repayment plans having been devised in both 2021 and 2023 and agreed with the indebted clubs, but then subsequently ignored.

According to the Audit Office, out of the 19 clubs which owed unpaid taxes in 2023, five had not made a single repayment since the plan was agreed, and 14 have since accumulated new tax debts.

The repayment deadline for the 2023 plan is June 2037, with the government hoping that the new bill will help facilitate those repayments.

In short, the government plans to increase taxes on takings by betting shops and then increase the percentage of takings by betting shops paid by the Cyprus Sports Organisation (CSO) to the Cyprus Football Association (CFA) from 1.5 per cent to three per cent.

This money, which is distributed by the CFA to the clubs, will then be used by the clubs to repay their debts over the next 13 years.

However, as some have pointed out, the bill essentially offers leniency to football clubs which is not typically afforded to regular companies which owe unpaid taxes to the state.

Typically, companies which fail to make tax debt repayments under plans agreed with the state see the scheme cancelled, before having to file for bankruptcy and selling off their assets for some of the debts to be recovered.

In some cases, directors and owners of businesses which have failed to repay their tax debts have even ended up in prison. Football clubs, their owners and their directors, have not, at least publicly, been threatened with such severe sanctions.

At the same time, as Akel MP Christos Christofides pointed out at Monday’s committee meeting, the state’s tolerance towards the offending clubs has effectively created unfair competition for those who do play by the rules.

Some clubs have dutifully paid their taxes and made their social insurance contributions on time and are seeing their rivals escape without punishment for not playing by the rules.

Diko MP Chrysis Pantelides went further on Monday, saying the bill proposed by the government would make “spoiled children” of football clubs.

Former finance minister and current Disy MP Harris Georgiades concurred, describing the plan as a “grant to the teams”.

“We have exceeded every limit for the football clubs. Those of us who tried to implement some form of regulation are ashamed,” he said.

Georgiades’ insistence that the current deal is a “grant” may raise alarm bells in Brussels, with state aid to professional football clubs being considered a serious violation of European Union law.

This was highlighted in 2016 when the Spanish government fell foul of the relevant regulations, and was ordered to make seven football clubs, including football giants Barcelona and Real Madrid, repay state aid given to them.

One particular instance referred to by the commission of the day was effective tax exemption for four Spanish clubs between 1990 and 2016, namely Real Madrid, Barcelona, Athletic Club Bilbao, and Osasuna – a case not incomparable with that seen in Cyprus.

Then European Commissioner for competition Margrethe Vestager was categorical in her position on the matter.

“Using taxpayers’ money to finance professional football clubs can create unfair competition. Professional football is a commercial activity with significant money involved and public money must comply with fair competition rules. The subsidies we investigated in these cases did not,” she said.

In addition to the legal consequences, concerns have also been raised regarding the potential consequences of the bill for Cyprus’ gambling industry.

National Betting Authority chairwoman Ioanna Fiakkou warned on Monday that an increase in tax rates may lead to existing betting companies no longer being financially viable, and thus open markets for illegal gambling.

Fewer operational betting companies would also likely mean lower tax revenues for the state, and thus lead the state back to the situation in which it currently finds itself.