Most of Manny Pacquiao’s fans don’t know that the Filipino boxer gets much less than his gross ring earnings in the United States, with a hefty cut going to taxes.
According to the lawyer Nick Khan, one of Pacquiao’s key handlers, since Pacquiao is not an American citizen, “foreign nationals who perform unique services [such as boxing] in the US can be taxed one of two ways.”
In an e-mail to Sports Times, Khan said that one means was the “default method,” where “30 per cent of the fighter’s gross purse is withheld for taxes.”
Should the boxer decide to file with the Internal Revenue Service—the American equivalent of the Bureau of Internal Revenue in the Philippines—”then he [Pacquiao] could be eligible for a refund if he can show legitimate deductions,” Khan said.
“If Manny later filed taxes showing what he paid his trainers, managers, etc. that amount would be refunded to him,” he added, implying that the process would take time.
Under this system, Khan said, for example, if Pacquiao’s purse was $3 million for a fight in Las Vegas “the IRS would withhold $900,000” outright.
Once the boxer can present an itemized and certified list of expenses for the bout, only then could he be reimbursed, he said.
However, Khan disclosed that since the new management team took over in early 2005, Pacquiao’s taxes on his winnings were paid through an alternative but legal system called a central withholding agreement.
“An accountant or lawyer must arrange for what is called a central withholding agreement on the fighter’s behalf with the IRS. The agreement states that certain amounts are going to be paid to trainers, managers, etc., and that the fighter should not have to pay taxes on those amounts ever,” he said.
Kahn pointed out that the second way ” is of a significant benefit to the fighter.”
“For example, if Manny made $3 million, the $300,000, or 10 percent that he pays to coach Freddie Roach, would be deducted. The amounts paid to management, Buboy [Fernandez, Pacquiao’s friend and assistant trainer], etc. would also be taken off the $3- million gross purse and Manny would be taxed a smaller percentage,” he said.
“Let’s say the percentage is 25 percent of the net amount, or $2 million. So rather than paying $900,000 of $3 million, Manny would pay $500,000 and save $400,000.”
Although slightly more complicated, Khan said the central withholding agreement was first used when Pacquiao signed up with manager Shelly Finkel in his first fight with Erik Morales in 2005.
“We have done the same for [the fights against Hector] Velasquez and Morales II,” said Khan, adding that the same tax-paying scheme will also be in place when Pacquiao faces Morales for the third time on November 18.
Given the penalty clause in the contract of the rubber match should Morales exceed the 130-pound weight limit, Pacquiao stands to save a lot from his earnings in the fight.
The contract states that should Morales weighs past 130 pounds, he will be fined from $500,000 up to $2 million should he exceed 132 pounds. On top of that, Pacquiao has the option to take the money and decline fighting “El Terrible” if he is two pounds overweight.
Morales, who cited his scrambling bid to meet the weight for his humbling loss to Pacquiao the last time they met on January 21, has tapped several nutrition and weight-training experts to tip the scales right for the forthcoming match.
Promoter Bob Arum has even enrolled Morales at the sophisticated gym, the Velocity Training Center, in California as part of the regimen so his strength and stamina won’t be sapped when he meets Pacquiao in what promises to be another no-holds-barred slugfest.
