Can I get a tax deduction for cheating?

Yes

About £34 million worth.

For legal / tax nerds here is the First-Tier Tribunal of the Tax Chamber's Decision: http://www.financeandtaxtribunals.gov.uk/Aspx/view.aspx?id=6744

 

For the rest of you - McLaren is a Formula 1 Motorsport team. It cheated. It obtained confidential information about another team, Ferrari, which McLaren intended to use for its advantage. 

This was found out and the bodies that run Formula One (The Federation L'Automobile (FIA) and World Motor Sport Council (WMSC) the FIA's General Assembly). Accordingly they decided that McLaren had broken its rules: the International Sporting Code (ISC) which are enshrined contractually in the Concord Agreement between FIA, Formula One Administration Limited (FOA) and the teams. They issued a fine of £32 million. 

Then it got interesting. 

McLaren did its tax return and stated that it had a reduction of gross income of £34 million (fine plus related stuff) and what's more this loss is deductible against earnings. 

 

The UK tax authority HMRC disagreed. 

 

There was a trubunal. 

 

McLaren won. 

 

 There may be an appeal. 

 

But

 

If there is there's a much better argument McLaren can use next time.

 

The underlying law in this case is quite simple. To quote from the tribunal:

Section 74(1) TA 1988 provides that in computing trading profits no sum shall be deducted in respect of:

(a) any disbursements or expenses, not being money wholly and exclusively laid out or expended for the purposes of the trade or profession; ...

(e) any loss not connected with or arising out of the trade or profession.

 

McLaren's legal team made the kind of straight down the line argument that one would expect from (what I presume are) non-gamers. And it worked (though by a split decision), so let's not knock it.

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. 

This is most clearly seen in contact sports. Here, not only are acts such as punching (boxing) and tackling (rugby) allowable and are not criminalised - even when players die as a result of such act. But there are a wide set of acts that are seen to be within the sport e.g. a punch in rugby or hitting a boxer when they are down. These infringements are governed by the relevant sporting body and not by law.

In general the criminal law of most countries will stand to one side and allow those bodies to deal with the infractions. Indeed the formal structure of sports is designed around explicit and implicit contracts that anticipate rule infractions - hence by contractual definition they are within the definition of the sport in at least one sense. 

There are also boundaries that players and other actors (these apply to officials in the case of in-game judgments, bribary and other matters) may step over where the criminal and other laws will step in. These are some what fluid and circumstantial relying, among other things, on the nature of the sport and norming power of the sporting body. The go to case in this area is Cey (Regina v. Cey, [Regina v Cey 48 C.C.C. (3d) 480 (Sask. CA. 1989)). 

Hence, as Formula 1 is a sport I suggest there is an overriding argument from the tradition of sports law that the infraction by McLaren is part of the practice of sport and hence constitutes an element of their trade. The counter argument would be an exception case that would fail one or more of Cey's tests or analogous ones applied to the type of action taken by McLaren. However the fact that the fine is not criminal in nature and that no such fine or other action has been mooted is a strong argument against this, as I suggest are the particularities of the WMSC judgment - though in any specific example this is amatter of judgment based on weight and interpration of facts, history and tradition.

In summary McLaren have a sound argument that their acts, despite being against the rules, can be considered to be within the actual practices likety to be associated with Formula 1 in the real world and thus any resulting fine from a governing body is, by defintion, a cost of trade. 

 

For a Terranova treatment of some elements of sports governance and law see:
Reynolds, R. “The Emperor’s (New) New Clothes.” Terra Nova, April 18, 2011. http://terranova.blogs.com/terra_nova/2011/04/the-emperors-new-new-clothes.html.

For a legal treatment os similar issues see:
Reynolds, R, and M deZwart. “Call of Duties: The Arbitration of Online Game Disputes.” In Conference Proceedings. Rutgers: Rutgers School of Communications and Information, 2011. http://www.scribd.com/doc/57503838/GBVG-Proceedings-v1.

Reynolds, R, and M deZwart. “The Duty To ‘Play’: Ethics, EULAs and MMOs.” Edited by A Krotoski. International Journal of Internet Research Ethics, no. 3.1 (2010). http://ijire.net/issue_3.1/5_Reynolds_deZwart.pdf.

For a philosophical treatment of the ethics of in-game practices see:
Reynolds, Ren. “Ethics and Practice in Virtual Worlds.” edited by John Richard Sageng, Hallvard Fossheim, and Tarjei Mandt Larsen, 7:143–158. Philosophy of Engineering and Technology. Springer Netherlands, 2012. http://dx.doi.org/10.1007/978-94-007-4249-9_10.



Comments on Can I get a tax deduction for cheating?:

ktizo says:

They should just make it a rule that marking your fines against tax incurs a fine equal to the previous fine, plus the costs of administrating the new fine.

Posted Oct 11, 2012 7:57:38 PM | link

Raimond says:

I am planning to deduct my parking fines as well.

Posted Oct 12, 2012 2:00:15 PM | link

Mike says:

I don't see the big deal. Why should the government make tax money off of someones privately incurred fine? That would be like saying you deserve $100.00 because your next door neighbor got caught smacking his wife around. A fine is like a tax in itself. No need to add insult to injury.

Posted Oct 13, 2012 10:42:16 AM | link

Andreas says:

The problem is, that you consider F1 a sport, when it acutally is a business. A business on a multi-billion-dollar-scale that is.

Posted Oct 15, 2012 6:20:57 AM | link

ESL jobs says:

ya, they must make the rule for it first

Posted Oct 15, 2012 7:42:45 AM | link