Cross-border tax compliance for professional athletes
With the globalization of sports around the world, and an unparalleled opportunity to get rare talent on one’s team, the professional sports leagues and teams in the United States and Canada are seeing a rapid increase of professional athletes crossing the borders on a regular basis and playing for teams and in leagues other than in their home country jurisdictions. There are no borders for professional athletes, but, with opportunities, come responsibilities.
It is clear that more and more American players are playing on Canadian teams and vice versa. The same is true about professional athletes from Europe and other continents. The majority of these professional athletes and coaching staff spend time playing and training in development camps and sports arenas both in Canada and the United States. With this constant back and forth travel (whether during or off season) between countries, a pertinent issue many of these professional athletes face is the complex tax regimes and excruciating tax compliance, especially in the United States and Canada.
Professional athletes are constantly under pressure to perform and to achieve lofty goals. With this overwhelming spotlight, financial and tax planning is often overlooked and given an inappropriate amount of attention by athletes and coaches and even their agents. U.S./Canada cross-border tax compliance is an evolving and dynamic framework with new tax policies and changes in regulations constantly introduced. This alone creates a number of complex challenges and could be bewildering to someone with insufficient expertise, education and experience.
It will be rare for established professional athletes to take care of tax compliance on their own, even if it only extended to retaining a qualified tax advisor (tax accountant or a tax lawyer). It can still happen in the minors, with their parents’ help, for example. Typically, professional athletes rely on their agents or financial advisors who act as trusted advisors and build a team of professional service providers who can address all issues based on their field of expertise (for example, a tax accountant would do tax return preparation; a tax lawyer may be needed to represent the athlete before tax authorities, a corporate or contract lawyer would draft agreements and other documents).
A good agent or trusted advisor would usually do a great job in building the advisory team for his client. Because taxpayers are required to sign documents (such as tax returns) by her/himself, it is the professional athlete’s responsibility to ensure compliance with all applicable tax laws and she/he would be personally liable for tax. In general, professional athletes and their supporting team of advisors, agents, lawyers, and accountants need to recognize that having local/domestic tax expertise is not enough to ensure cross-border tax compliance. They also need to recognize the fact that failure to comply with international tax rules of relevant jurisdictions (here, U.S. and Canadian tax rules, as well as federal, state and local levels) may result in considerable financial losses, severe penalties and, in extreme cases, even potential prosecution. Just remember what happened with Wesley Snipes…
Our team at U.S. Tax IQ understands that complications arising from U.S./Canada cross-border taxation should be the last impediment any athlete should have to deal with while trying to achieve their goals.