Payments to foreign players in IPL under scanner

As the tax probe into IPL accounts deepens, one of the key questions confronting investigators is the losses franchises have recorded in the first two years of the tournament.

Despite growth in total IPL revenue — from Rs662 crore in 2008 to Rs774 crore in 2009 — team owners in most cases have either posted losses or barely broken even.

According to details from I-T surveys carried out over the past two days, the maze of payments and receipts from media rights, sponsorships, gate money and endorsements have not yielded profits so far.

In the case of Chennai Super Kings (CSK), which is one of the most successful of franchises, having figured in the semis or finals on all three occasions, IT officials say account books show the franchise as incurring losses for two consecutive years.

Data made available to the IT sleuths showed that CSK earned revenues of Rs35 crore for the first year and Rs45 crore for the second year from IPL. It has also shown an expenditure of Rs55 crore towards salaries of players in both years. IT officials said the TDS on the player’s salary had been paid, giving legitimacy to this account.

“However, CSK has also shown several crores of expenses under the ‘other expenditure’ head, which includes travel and lodging expenses. They have also been paying Rs36 crore to IPL as the annual franchise fee,” an IT official said.

Foreign players paid illegally
The IT department scrutiny is not just limited to the sources of funding of the IPL franchisee owners. It is learnt that the department is also seeking information on how certain players are likely to have been paid by their franchise owners in excess of the salary caps stipulated by the IPL rules.

Sources say the department has learnt that two or three franchisees have breached this salary cap.

Documents with the Enforcement Directorate indicate that payments were made to foreign players in violation of RBI norms and Foreign Exchange Management Act (FENA) regulations.

In some cases, the players have been made extra payments in cash, and in one case the cricketer has been shown as an employee in the franchisee’s account book. BCCI officials have been worried about instances of regular ‘jobs’ being offered to cricketers by the mother company of their franchise.

When the IPL began in 2008, each team was allowed to spend $5 million a year to hire cricketers. This limit was later increased to $7 million. IPL officials had said then that the idea behind a salary cap was to create a level playing field between all franchisees, in terms of resources deployed to buy up the best players.

Meanwhile, the tax department has roped in its International Taxation department to assist in probing the flow of money brought into the IPL by the various franchisees through tax havens like Mauritius.

Department officials said they would be writing to the Mauritian government with whom India has a bilateral tax treaty to shed light on investors. The department already has the preliminary information and shareholding pattern of the franchisees, which show flow of funds from complex multi-layered structures.

The department also suspects that other tax havens such as Bahamas, the Maldives, Macau and Cayman Islands, are involved, but gathering information will not be easy as the country is still in talks for similar agreements with these countries. Tax officials say there are also indications of some shareholders fronting for others in some franchises.