F1 tax row clouds Indian GP

[John S]

Drivers face 1/19th charge on season income.   Why's this not sorted by now???? 

http://uk.reuters.com/article/2011/09/09/uk-motor-racing-prix-india-idUKTRE7885LH20110909?type=formulaOne

[Scott]

I can only imagine how they'll deal with this one...

Probably a room full of Indian tax lawyers right now discussing things and working out the number of dollars that the promoter is going to have to come up with to reimburse the teams and drivers for any lost tax revenue.

[Alianora La Canta]

This should be easy to sort out. It's only the same tax concept as France, and F1 went there for years (and is going again from 2013). The only reason there should be a problem is the uncertainty over exemption. They'd have been better off simply imposing the income tax fee...

[Jericoke]

Dead simple.  Pay drivers $1 (or euro or whatever local currency) for every race, and then their full salary for the Monaco GP

[Alianora La Canta]

Won't work. India (and France) would still want 1/19th apiece of the total annual earnings as F1 racing drivers.

[cosworth151]

Simple. One message to India: Drop the tax or we drop the race.

[John S]

Simple. One message to India: Drop the tax or we drop the race.

That could be a tricky one for our Bernard, upset the drivers and their teams - or lose money because there is a firm contract in place? 

Umh, now what do we think he might do? 

[Alianora La Canta]

Simple. One message to India: Drop the tax or we drop the race.

Which is now an illegal demand thanks to new anti-corruption laws (as in, the law specifically preventing this passed about 10 days ago because someone went on a couple of months' hunger strike and pushed corruption to the top of the agenda). The tax long pre-dated the contract, so Bernie should have known prior to signing. It's possible to ask politely for an exemption to the tax, and it has been granted to the occasional team (visiting cricket teams for high-level matches and participants in the Commonwealth Games), but not to the organisations running the financial side of the sports. The teams/drivers could theoretically get to skip the tax, but Bernie and CVC cannot.

So it's: upset the drivers and their teams and pay over tax equal to 3/366th of CVC's annual F1 income - or lose money because there is a firm contract in place, be fined on top of that and go to prison (I'm sure India will love to make an example of a foreigner, especially if they think his successor might be a relatively soft touch)?

Probably not one of Bernie's tougher decisions.

[cosworth151]

I'm sure that some reason could suddenly pop up: The track is not up to spec, security concerns.....Bernie could not only keep the money, but he could hit them with a fine.

The drivers might all come down with the flu.

We've seen many, many F1 contracts suddenly just go away.

This kind of last minute government nonsense really makes India look like a good place for F1 to steer clear of.

[Alianora La Canta]

Bernie can't afford to do any of that at a track which he's hoping will be the key to unlocking a market upon which his future strategy depends. By hook or by crook, he has to find a way of hauling the drivers to the event and, at the very least, making the first one happen.

The track spec is up to the FIA, not Bernie. If it passes muster to Grade 1 standard, Bernie's powerless to do anything except demand upgrades as a condition of extending the contract... ...which doesn't expire for several years anyway.

Security concerns won't work because only the FIA or the organisers can use that as an excuse to stop the race from happening - and the FIA has a stake in making this event happen for political and road safety (i.e. policy of other departments) reasons.

Only if the contract is not adhered to - and there's no sign of that happening - does Bernie get the right to stop the event. Enforcing a country's long-standing tax regime does not come under contract, nor is it likely to be even possible (it's not last-minute at all because India's had that particular version of the law since 1962).

Drivers could come down with flu, but if so, they're the ones who risk being in breach of contract, not the circuit. In the first instance, Bernie would have to compensate the track for not providing the show, not the other way round.

In short, Bernie doesn't really have a defense against this move.

I'm sure that some reason could suddenly pop up: The track is not up to spec, security concerns.....Bernie could not only keep the money, but he could hit them with a fine.

The drivers might all come down with the flu.

We've seen many, many F1 contracts suddenly just go away.

This kind of last minute government nonsense really makes India look like a good place for F1 to steer clear of.

[cosworth151]

Bernie's contract isn't with the government of India, it's with a group of promoters. It was their duty to have this all sorted out in advance. If they didn't do their due diligence, pull the plug on them. Have you ever know Bernard Ecclestone not to have escape clauses in any contract that he's involved with.

Security certainly would work. If you'll recall, they almost used that as an excuse to cancel the USGP at Indy ten years ago this month.

Sadly, Ali, Bernie's only future strategies involve the enrichment of Bernie. He's shown that he'll throw a race to anyone with a big enough sack of cash, be they in Bahrain or Donington, India or Austin. I'm not saying don't have a race in India. I'm just saying this group of promoters doesn't seem to be up to the task. Find someone who can sort out all of these major problems then schedule a race.

[Alianora La Canta]

Bernie's contract isn't with the government of India, it's with a group of promoters. It was their duty to have this all sorted out in advance. If they didn't do their due diligence, pull the plug on them.

Tax is between income-earners and the government; it's not the organisers' problem if the income-earners don't fancy complying with the established rule of law. It's the income-earners that didn't do the due diligence and therefore they who would have the plug pulled upon if it came down to it - by the organisers or the government, either of which would lead to Bernie paying compensation to the organisers for breach of contract. If Bernie wanted refunding he'd have to get the teams.

What I recall of USA 2001 is that the Schumachers panicked about security and everyone else carried on preparing without making any kind of cancellation threat at all. It was Monza that nearly got altered racing arrangements due to 9/11 - and that was down to safety concerns artificially heightened by 9/11 and Zanardi's accident, not security. Even so, my argument isn't based on whether it's possible to cancel a race on security guards, but on whether Bernie could get paid for a race cancelled for that reason.

Remember Bernie does not have the power to cancel a race for any reason except direct breach of contract (that's things like not paying the annual fee or not providing a circuit with the tarmac in place). Third-party breaches of contract (tax being third-party even in cases where the government is the race promoter due to the way F1 contracts work) cannot be judged or cancelled by Bernie, but only by the FIA or the organisers.

Tellingly, when Bahrain was cancelled for security reasons at the start of this year, Bernie did not get his race fee. He only gets that if the race runs or he cancelled it. Since neither of the parties who can use security as an excuse to leave the contract would be able to save Bernie from having to pay compensation, it wouldn't work as an excuse for Bernie's purposes.

Have you ever know Bernard Ecclestone not to have escape clauses in any contract that he's involved with.

Yes - Bahrain this year, for one. He tried telling the world he could cancel the contract but it didn't work because it wasn't true.

Sadly, Ali, Bernie's only future strategies involve the enrichment of Bernie. He's shown that he'll throw a race to anyone with a big enough sack of cash, be they in Bahrain or Donington, India or Austin. I'm not saying don't have a race in India. I'm just saying this group of promoters doesn't seem to be up to the task. Find someone who can sort out all of these major problems then schedule a race.

I gathered that was Bernie's strategy, but on this occasion screaming at the organisers will make Bernie lose money, not earn it. If he wants to earn money from this he needs to threaten to fine the teams who don't show up, as well as recommend any driver not showing up to be referred to the FIA Court of Appeal for possible cancellation of their Superlicences. He has the power to do that...

The promoters are acting perfectly responsibly. It's the income-earners on the F1 side that don't want to play ball who aren't. The one who can sort out this problem is Bernie, and he must sort it by telling off the F1 people.

[cosworth151]

What I recall of USA 2001 is that the Schumachers panicked about security and everyone else carried on preparing without making any kind of cancellation threat at all.

That was about the only time F1 got major coverage over here. There were daily stories about the impending cancellation. I live just a few hours from Indy. I was in Indy, at the Speedway several times during those weeks. I remember the Schumachers' comments, but it was much, much more than that.

And do you really think that Bernie lost money on Bahrain? We have a story over here about Br'er Rabbit and the brier patch.

I far as I can tell, France is the only other county that had this policy with an F1 race. That problem was settled: there is no more French GP.

[Jericoke]

I remain unconvinced this a genuine problem for F1.

It would be incumbant on the Indian Government to establish exactly how much money was 'earned' while the drivers were physically in India.  A Formula One driver's duties extend far beyond going on track for 19 Sundays.  They do testing, they do sponsorship events.  Their contract covers a full year, not 19 days.

Thus, at most they would be liable to be taxed on 4/365 of their income.

[Scott]

Yeah, I didn't really understand how the Indian gov't can claim taxes on 1/19th of their income.  A bit presumptuous.