Cheating F1 team wins the right to deduct its fines from its taxes

McLaren, a cheating Formula 1 team, got caught and fined £34M, so they deducted it from their taxes. The British tax authority objected, but they appealed, and won. Ren Reynolds has a gamerly perspective on this on Terra Nova:

In short McLaren argue that the fine was an expense related to the trade that they were engaged in. That there are exceptions to this such as statutory fines, but this was not such a fine, it arose out of the contract between them and the sporting body and it was not a 'punishment' but a commercial deterrent as such it was a risk of and thus an expense of trade.
The way that this has been presented in some elements of the UK media is a some what popularist version of the dissenting opinion in the case by Dee. This opinion holds that the fine was a punishment and that 'fines and penalties' of a similar nature are not allowable under tax law. What's more "the conduct of McLaren fell way outside any normal and acceptable way of conducting their trade, as found by the WMSC."
The problem with this view is that it misunderstands the nature of games / sport and in particular their relationship with law.
To put it simply the sort of conduct that is accepted as part of a gaming or sporting practice is not just that set out by the rules but also a wide set of acts that are within the tradition of the actual practice of that game or sport. That is, there are types of cheating that while outside the rules of the sport are still seen as being within the bounds of that sport.

Can I get a tax deduction for cheating?

I write books. My latest is a YA science fiction novel called Homeland (it's the sequel to Little Brother). More books: Rapture of the Nerds (a novel, with Charlie Stross); With a Little Help (short stories); and The Great Big Beautiful Tomorrow (novella and nonfic). I speak all over the place and I tweet and tumble, too.

MORE: cheating • finance • law • taxes • uk

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Brainspore

I wonder if they’ll give you a deduction for an additional dependent if you cheat on your spouse.
- Boundegar
  
  If you have the kind of mistress who requires full upkeep then yes, she would qualify as a dependent – but not as a relative. Whether you support a non-working lover or a displaced flood victim, you’re paying food and maybe rent, and that’s an exemption.
  - robuluz
    
    Whoa yeah. Those kind of mistresses.
  - CH
    
    But what if one part of establishing yourself as a successful businessman/politician/evil overlord is having a mistress or two. Can you then deduct any expenses related to the mistress as a business expense?
    
    Oh, and I guess the package also should include a pool boy for the bored-at-home-trophy-wife.
    - Boundegar
      
      Well I guess in Mafia circles it might be… but then, you’re probably not declaring all your income, so I wouldn’t risk any funky business expenses.
geekd

If this is about the 2007 fine for getting Ferrari documents from Nigel Stepney, thought that was $100,000,000.
- Stooge
  
  It was $100m: the linked article misinterprets what actually happened.
  McLaren were fined a total of £66m. £34m was the amount that McLaren would have received from the FIA that year and was withheld, and the team handed over an additional £32m to cover the difference.
  
  There was no argument about taxing the withheld £34m, but HMRC rather oddly decided to claim tax was owed on the £32m.
noot

The fine is from the FIA, not the British Government so, technically, it *IS* an expense related to their trade. If the fine was levied by the government then we might have something to rail on them about.
- Shinkuhadoken
  
  Except the part where taxpayers are underwriting the bill.
  - geekd
    
    How are “taxpayers are underwriting the bill” ? McLaren is a private company.
    - Bill Vincent
      
      Because that’s millions of dollars NOT going into the tax coffers.
- Boundegar
  
  US law works the same way. You can’t deduct your speeding tickets, but you can deduct a penalty or fine levied by an employer or a sporting group. You can even deduct some gambling losses.
  - http://illustratorhints.com/ Jesseham
    
    I always wondered about that and I just realized – It’s because they’re gambling wins for the casino, who then (maybe) pays taxes on them
    - Boundegar
      
      Not exactly. You can net your losses against your wins, if you have any. Very few gamblers have more wins than losses.
nettdata

As I understand it, the fines that are being discussed are in respect to the FIA, which is nothing more than a sanctioning body. Basically, they are not criminal fines or punishments, merely fines that they agree to pay per their membership agreements, due to findings of the various FIA governing bodies.

I used to manage a professional Porsche Grand Am racing team, and we regularly wrote off fines and penalties as the cost of doing business. Because it was actually that. We had the option of not paying the fines, but then we’d be kicked out of Grand Am.

I don’t see anything wrong with the findings of the courts in this case, as it was a fine as defined by a private regulatory body, not as defined by the tax code.
- http://daruiburns.tumblr.com/ Dlo Burns
  
  What kind of things do you get fined over? I guess for some reason I grew up with the naive notion that people get fined as a last resort before getting kicked out of whatever league they were in.
  - Nick Hayday
    
    Everyone in F1 gets fined for not being Ferrari
  - nettdata
    
    In our case in Grand Am, we’d get fined for any minor infraction that was done by the team that didn’t warrant something like a drive-through penalty, etc. For instance, too many men over the pit wall, having something (like a tire, tool, lug nut) go outside of your pit box during a pit stop, leaving something in your pit box after a pit stop (like a lug nut, etc), all were worthy of fines.
    
    They can also be somewhat arbitrary. For instance, about 3 years ago, when we were competing in the 24 hours of Daytona, it was the closest finish in the race’s history (at least in the Daytona Prototype, or DP class). There were 4 cars within seconds of each other racing the last few laps of the race, going for the checkered flag, after a solid 24 hours of racing. Exciting shit, to say the least. Race Control came on the radio and said, in no uncertain terms, that if any GT class car (like us) got in their way, or fucked with the finish of the race in any way, the team owner would be summoned to the head office, and they’d better bring their checkbook.
    - nettdata
      
      Here’s a pic of us doing a driver change… you can see things get pretty hectic, and all the while a Grand Am official is sitting there in pit lane watching for infractions.
GawainLavers

Gods how I wish politicians would spend half as much time worrying about corporate law-breaking and tax avoidance as they do puffing themselves up about the “integrity” of a pack of grown men who run around on a lawn hitting balls with sticks.

( Go Giants!)

That said, games (including, of course, sports) are an increasingly important part of peoples lives — and should be! But we need a more clear discussion about why games are important to us so that it is intuitively obvious to people why the government should have no interest in the regulations and bylaws of sporting authorities.
Aleknevicus

The phrasing of the title of this post is misleading. It implies that £34M is deducted from the taxes that McLaren has to pay. That’s not correct according to the linked article. Rather, £34M is deducted from McLaren’s earnings. The two situations are significantly different.
- Bill Vincent
  
  True, but that represents a significant reduction in their tax liability.
spacedoggy

F1 is not a real sport. and I used to love it, watch races with my grandad etc. until the race in 2002 Rubens B. was ordered to slow his winning car to a near stop on the finish line. So that M. Sch could take first place even though he was already several races ahead in terms of points. I turned the TV off in disgust and never watched that crap again. I may as well watch WWE. the point here is if a fine for cheating, is a tax deductible calculated risk expense, and not a punishment, then it’s proof F1 is not a Sport, but a sports themed TV Show.

It’s hard to find footage of it, Bernie Eccelston must be no stranger to the DMCA request form…
this vid doesn’t show that there was nearly a riot in the stands over it in the stands…
http://www.youtube.com/watch?v=qNWbvgHhngg
- Boundegar
  
  Actually, fines for cheating would be deductible for players of every sport. This is proof that sports are not sports. No, wait…
  - spacedoggy
    
    … I’m waiting…
- eee
  
  F1 is a team sport, and as such, the team shall decide what is best in terms of overall results. *Team* being the operative word, and this incident contributed to an eventual clarification to the sporting regs covering such maneuvers.
  
  As others have stated, the fines are a part of doing business in the sport. Nothing nefarious going on here, in my opinion.
- toyg
  
  If you seriously think that was the first instance of team-play in F1 (or any motor-racing format, for what matters), you’re very naive. If anything, it was a naked display of raw power from Schumacher, who’s been a shark his entire career… like pretty much any lead-driver in the paddock, including people who never won anything. That sport is so dangerous, you have to be either fanatically competitive (like Schumacher, Senna or Prost were) or simply borderline insane (like Eddie Irvine, Nigel Mansell, or pretty much everyone in F1 before the ’90s) to put yourself in a small metal box attached to a monster experimental engine that could explode any minute, and shoot down a curvy track at NASA speeds. At that level, platitudes about teammates are just that, platitudes; it’s actually refreshing when you see people like Schumacher not giving a f*ck about hypocrisy.
- Vole_tron
  
  It’s a team sport. Why shouldn’t a team maximise the points of their driver best placed to win the drivers championship? In what way is that cheating?
  - Antinous / Moderator
    
    This was covered several times in the recent Olympics when a number of athletes were thrown out for losing matches in order to match up with weaker opponents in later stages of the competition. The assumption in sport is that every athlete does his or her best. Otherwise, the fans are just watching a big chess game, which frankly is not going to be of interest to most racing fans.
    - Vole_tron
      
      Yours is not a like-for-like comparison.
      
      The team did not lose the race, they had a secure 1-2 finish and swapped the positions of their two drivers. This is standard practice in team-based motorsport – especially towards the end of a season – and definitely not against the rules at that time.
      
      Having said all that, the rumours were that Schumacher had a clause written into his Ferrari teammates’ contracts forcing them to always defer to him. If true, that is objectionable.
      - Antinous / Moderator
        
        Fans want to see racing, not strategy.
- Jonathan Roberts
  
  It seems to be part of team strategy, the same as Wiggins/Froome during the Tour de France. You just decide how you want to support the main goal and go with that, even if it doesn’t seem to make sense from a individual race standpoint.
Halloween_Jack

So, can Lance Armstrong deduct the cost of his EPO from all those years?
dayhat

There is an analogous situation playing out in Australia. A wealthy benefactor (who set up the MONA art gallery in Tasmania) who arrived at his riches via complex gambling routines is being chased by the tax department. Previously they had quailed from pursuing gambles due to the concerns that if you start taxing gamblers, they might want to start claiming any gambling loss as a business expense!
http://theconversation.edu.au/sex-death-and-taxes-how-should-the-tax-system-treat-mona-founder-david-walsh-8463
http://www.loudmouthman.com Loudmouthman

Depending on if the fine as a Civil or Criminal action ; some fines are tax deductible others are not ; this is not exclusive to sports http://www.hmrc.gov.uk/manuals/bimmanual/bim42515.htm
- http://www.jimdraws.com Thorzdad
  
  The McLaren fine is neither Civil nor Criminal. It’s internal to the operations of F1 and the FIA. As such, the fine IS a business expense.
  
  I’m really not sure why this made it as a BB feature. Businesses have always been able to deduct operating expenses.
  - bkad
    
    Agreed. This like being ‘fined’ for cancelling your cell phone contract early. It’s not a criminal punishment or a civil penalty, just a legal business transaction.
http://twitter.com/AndBobando ando bobando

So does this mean that the FIA has to declare the 34M as income and thus pay taxes on it? In which case, who really cares?
- AlexG55
  
  Possibly HMRC care because the FIA is based in France, and therefore won’t be paying taxes to them on it…
  - http://twitter.com/AndBobando ando bobando
    
    Ahh yes, makes sense!
http://twitter.com/Noddy93 Noddy Ninetythree

I don’t have a thing to add to the conversation as it has all been stated. I simply want to say that I love my favorite sport being discussed on BB.

it makes me feel all warm inside, much like whenever Exene or X is mentioned on these pages.