From todays' Sunday Times:
The club has established a series of secretive front companies and offshore trusts to reward its stars and save them millions in tax every year.
On average, the proportion of income paid by the players to the Inland Revenue is about half the 40% rate normally paid by high-earners.
The trusts enable foreign-born players such as Thierry Henry, the French striker, and Dennis Bergkamp, the Dutch star, as well as Arsène Wenger, the team’s manager, to avoid paying any tax on their six-figure bonuses.
British players including Ashley Cole, the England defender, and Ray Parlour are able to pay tax at a rate of just 1% on some of their bonuses.
In one season alone, some £7.6m of the club’s wage bill is estimated to have been channelled through one of the trusts, with nearly 30 players having to pay a total of just £76,000 in tax.
The sophisticated tax avoidance plan, developed by the accountants Deloitte & Touche, is legal but such schemes are widely regarded as unethical. They come as ordinary taxpayers are being hit with an array of new levies including caps on pension schemes and restrictions on middle-class inheritance plans to plug Gordon Brown’s spending shortfalls.
The chancellor has recently launched a clampdown on schemes designed purely to avoid tax. He has previously uncovered tax dodges involving people being paid with gold coins, fine wines and Turkish lira. Last night, the Revenue said it was "on to the latest arrangements".
In 2001 Arsenal discreetly set up a firm called Sevco 1270 in which its first-team players are shareholders.
Its existence has never been revealed in the club’s published accounts. Its only role is to pay players their bonuses in the form of dividends.
The last official company returns filed by Sevco show that the payments were made to a Jersey-based trust, Fidus, on behalf of the players. According to leading accountants, paying foreign players in this way means they can legally avoid virtually all tax and national insurance.
As a result, Henry is estimated to have saved nearly £70,000 a year through Sevco 1270, Wenger about £118,000 a year, Nwankwo Kanu, who left the club this summer, more than £60,000 and Bergkamp more than £45,000.
British players are able to cut the tax they pay from 40% (plus 1% national insurance) to 25% by receiving their bonuses from Sevco 1270.
Parlour has saved £22,192 a year and Ashley Cole more than £20,000. Alongside Sevco 1270, Arsenal has also set up another even more tax-efficient scheme to pay players’ bonuses known as an employee benefit trust. The trust "loans" players their bonuses although, in reality, the loans are never repaid.
The tax on such "loans" is about 1% of the value of the bonus each year, rather than 41% had the bonus been paid directly. A player receiving a £500,000 bonus would therefore pay annual tax of £5,000 rather than the £205,000 that would normally be surrendered.
Arsenal are calculated to have paid out £7.6m in bonuses through this loan operation during the 2001/02 season, the last for which accounts are available. The tax dodge is estimated to have saved players a total of more than £3m.
One leading accountant, who asked to remain anonymous but has studied the Arsenal scheme for The Sunday Times, said: "It is at the forefront of tax avoidance — a very aggressive attempt to stay ahead of the Inland Revenue."
The details have come to light as a result of a divorce case involving Parlour, who was forced to disclose details of his salary package to the courts. He initially failed to provide details of the bonuses or second contract, a move condemned by the judge, and the information was also withheld from his mortgage company.
However, Parlour finally admitted that for the 2001/02 football season he was paid an annual wage of £775,008 plus a signing-on instalment of £93,750. Other bonuses brought his total pre-tax package to £1,557,267. He paid just over £350,000 in tax — a rate of 22%. Had he paid income tax and national insurance at the normal rate he would have handed over £630,000.
The court was also told of lavish spending by Arsenal footballers. Parlour, who has five properties, revealed he was a regular gambler and the court was shown copies of his betting account at IG Index which stretched to more than 200 pages.
Arsenal are not the only English club to adopt tax-saving systems: Middlesbrough and Leeds United have also used employee-benefit trusts to reward players. Arsenal’s latest accounts reveal it has increased the amount it spends on tax-planning advice by 15-fold to set up its various schemes.