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Tuesday, 8th October 2024 |
| Ireland appears to have been suffering from stadium mania over several months. The taxpayer has already contributed to one stadium, and may be called upon to do so again. That would pale into insignificance compared to the contribution to the Abbotstown stadium. Has tax any relevance to all of this? |
Expensive, often empty
A Sports Stadium often seems to involve certain features.
• It is expensive to build.
• It lies empty for most of it’s lifetime.
• It is probably worth less than it cost the day after it is built, because it is a specialized property with uncertain commercial prospects.
To date the public debate on the Abbotstown stadium in particular has centered on the prospect that it would absorb a large amount of tax revenues. Where there is not a secure commercial future for a venture, that is a fairly likely prognosis. But there are more ways than one of using tax revenues to finance a stadium.
Capital allowances
Why not consider capital allowances? Capital allowances were the favourite tax incentive in the past when the State needed to induce a cautious business person into laying out a large capital sum on an uncertain venture e.g. an advance factory for the IDA, or the regeneration of a derelict urban area.
Capital allowances will be relevant only if individuals or companies were willing to bear the cost of developing a stadium. Capital allowances alone would not be sufficient to induce such expenditure. At best they would cover approximately 42 p.c. of the cost. It would be necessary to demonstrate the potential for income to cover funding costs and the balance of capital expenditure.
That commercial prospect could arise in two ways. It would arise if the State, or a State body rented the completed stadium complex from the original developers. Alternatively it could arise if there were a prospect that the development and operation of the stadium complex in it’s wider sense looked as if it could be profitable.
The 12.5 p.c. digital future
Could there be commercial attractions in the stadium? Ireland will have a 12.5 p.c. corporation tax rate long before the stadium is built. We are simultaneously experiencing the beginning of the digital age, when the means of delivering entertainment to homes worldwide may exceed material available to be delivered.
Could the 12.5 p.c. corporation tax rate attract sports promotion groups who require not so much a venue for a local audience, but a location where they can film sports events for worldwide distribution?
The hundreds of television channels available on digital TV will demand a large increase in output of filmed or broadcast sporting events. The demand for broadcast sports events may exceed the availability of live audiences. Sport for the camera may be the future.
Does Irelands 12.5 p.c. corporation tax rate offer the opportunity to market Ireland as the digital sports centre of the world?
The more profitable major sports clubs may also see the attractions of low Irish corporate tax. Could a sports weekend in Dublin (soccer in the afternoon, a rock concert in the same stadium in the night time, followed by a late night disco or even a casino close by) come to complement the more traditional stag weekends in Dublin?
A stadium necessarily requires large car parks. Car parks are also a necessity for shopping centres. Could the commercial viability of a stadium be enhanced by associated commercial development, including hotels, shopping centres and housing?
Attitude change needed
There is of course a serious obstacle to the use of capital allowances to induce risk takers to take the very significant risk of financing a stadium. That obstacle is the fact that capital allowances are of little value to Irish resident companies because of their low corporation tax rate. Furthermore the government has in recent years set it’s face against the use of capital allowances by individuals to minimize their taxation liability. Investor capital allowances, once widely used as an incentive for capital expenditure, are now ring fenced and capped to the point where they are largely an irrelevance in the financing of capital projects. Most capital allowances can be relieved only against rental income and even those which may be offset against other income are generally capped at ?25,000 pa per person.
Private finance, and in particular private commercial expertise in executing the project and subsequently running it, has the potential to minimize the cost to the taxpayer of a stadium project. But to do so it is necessary that current attitudes to the enjoyment of capital allowances by individual taxpayers be jettisoned. The argument in favour of capital allowances for a project such as this are overwhelming. This is not an asset where the money poured into it grows in value from day one. On the contrary, this would be an asset where the money poured into it would not represent value on day one, whatever it’s long term future.
Abbotstown could be another IFSC, or another Temple Bar. Or it could be another white elephant. How we play the tax card could determine the matter.
Pat McDaid is a tax partner in KPMG. |
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| Article appeared in the May 2001 issue.
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