Football's FIFA and the African tax-free bubble

Following Christian Aid's superb report on the use of offshore tax havens in football, we thought we would draw attention to something else unhealthy in the not-so-beautiful game. This is South Africa's Revenue Laws Amendment Act 20 of 2006, which football's super-wealthy governing body FIFA demanded as a price for allowing South Africa to host the World Cup.

What this Act does, in effect, is to ensure that this struggling African country cannot tax super-profits that FIFA earns. As the Act states:

"The Act creates a “tax-free bubble” around FIFA-designated sites so that profits on consumable and semi-durable goods sold within these areas will not be subject to income tax; neither will VAT be applied."

And what are these sites?

• the ten World Cup stadiums
• any FIFA-designated exclusion zone
• any official tournament parking area
• press and television centres set up for the tournament (including the International Broadcast Centre)
• certain training sites during official FIFA-sanctioned training days at those sites
• official host city public viewing venues (also known as fan parks)
• certain areas for VIPs
• any other area or facility utilised for official 2010 events as agreed in good faith between FIFA and SARS

And why on earth would South Africa provide such a massive subsidy to such a wealthy global multinational (whose $200 million headquarters is in Zurich)?

"This “tax bubble”, a condition for the hosting of the tournament, is something all World Cup host countries must provide. It means that FIFA, FIFA subsidiaries and the participating national associations (excluding SAFA) will – when it comes to VAT on goods and services directly relating to the tournament – be treated as diplomatic missions are treated."

Now this bargaining power gives a clue as to what FIFA is - a one-and-only monopoly. And what kinds of profits do monopolies earn? Economists call them rents - 'the income of men who love to reap where they never sowed': the kind of easy money that accrues to an oil-rich dictator. These are not profits, but super-profits.

Every sane economist since the days of Adam Smith has admitted that it makes good sense, and it is highly efficient, to tax rents at a very high rate - because of the nature of rents, high taxes on them don't discourage investment. (We wrote more about rents recently, in the context of Mexico, here.)

Instead, we have this ultra-wealthy wealthy, unaccountable offshore organisation - a rather aggressive one, as it happens, as evidenced by its recent threats against OffshoreAlert over allegations of corruption -- using its monopoly position to demand tax revenues from Africa.

And if that doesn't make you angry enough, then return to Christian Aid's report Blowing the Whistle, on the role of offshore in British football.

(hat tip: BBC, which provides further analysis)