Sports and taxes (2023)

Tuesday 5 December 2023

Report on a session at the annual IBA ‘The New Era of Taxation Conference’ in Rio de Janeiro
Tuesday 10 October 2023

Session Chairs
Roberto Duque Estrada, Brigagão Duque Estrada Advogados, Rio de Janeiro
Carsten Schlotter, Flick Gocke Schaumburg, Bonn

Bruno Arez Martins, Eversheds Sutherland, Lisbon
Devon Bodoh, Weil Gotshal & Manges, Washington, DC
Andrea Gallizioli, Gatti Pavesi Bianchi Ludovici, Milan
Luís Fernando Pamplona Novaes, Nemetz Kuhnen Dalmarco & Pamplona Novaes, Blumenau

Rogério Bittencourt, Mattos Filho, Rio de Janeiro


The panel covered several important and current topics on the taxation of professional sports, with a special focus on football. The topics covered included: the international taxation of player transfers and loans; image rights; TV quotas; licensed products and bets; agent remuneration; tax residency issues and incentives; Brazilian ‘anonymous football societies’ (SAFs) and investment opportunities; and tax issues arising from investment structures.

Panel discussion

Players transfers and loans

The panel began with topic transfers and loans, initially presented by Carsten Schlotter, who described the detail of the special tax regulation in German law on athlete transfers and loans, which provides for a 15.825 per cent withholding income tax (WHT) on income derived by foreign clubs (lenders – on loan income, or for transferors – on capital gains).

Schlotter also explained that signing fees paid to a player are not in the scope of the WHT, and it is unclear whether the tax regime covers payments to agents. He added that, for treaty purposes, the loan income falls under Article 7 (business profits) of the law, which denies withholding taxation at source.

Bruno Arez Martins added commentary from the Portuguese perspective, which shows that the jurisdiction is more friendly than Germany, since it does not impose a WHT on non-residents relating to income derived from the transfer of athletes. Martins clarified that income arising from the transfer of players from Portugal is qualified as capital gains, with a special rule applied where a percentage of the rights related to a player were previously transferred.

In the case of loans of athletes, the costs borne by the transferor (salaries, amortisations, etc) are tax deductible, even where the loan is non-remunerated. Player loans are subject to value-added tax (VAT) when provided by a foreign club to a Portuguese club, unless consideration paid for the loan corresponds exactly to the refund to the transferor of the salaries, social contributions and other costs that are or should be borne by the club that holds the sports rights of the player.

Devon Bodoh commented that issues concerning the international transfer of athletes are quite new to the United States, at least in regard to the volume of such transfers. In the case of loans, a WHT may apply to a payment from a US club to a non-US club, if the payment is deemed as a consideration for services. A tax deduction of the loan costs may be allowed if the US club is considered as the ‘employer’. Bodoh added that the receipt of loan fees by a US club is taxable as ordinary income.

Andrea Gallizioli provided the Italian perspective on the transfer of football players, according to whom the income from the transfer of players is deemed as capital gains. Italy does not impose a WHT on the income of non-residents related to loans or the transfer of players. The deductibility of expenses (eg, impairment losses) resulting from a zero-cost transfer of players was subject to controversy in Italy, but the Italian Supreme Court ruled that such deductibility is possible.  

Luís Fernando Pamplona Novaes argued that in the past few years tax authorities have placed more focus on player transfers. Novaes commented on the tax treatment of buyout clauses present in player agreements. He referred to the Neymar situation, who in 2017 received €222m from Paris Saint-German FC (France) to comply with the buyout clause present in his employment agreement with FC Barcelona (Spain). As per the Spanish tax authorities’ understanding, the amount received by the player is a capital gain and the amount paid as the buyout is a capital loss. In the Neymar case, the amount received was completely spent to pay for his buyout, so no income tax should have been levied. He added that from the club’s perspective the amounts received as buyout are treated as capital gains in Spain.

Players’ agents

The panellists also explained the tax controversies involved in the payment of agents’ fees. Novaes commented that agents usually incorporate entities to receive their fees (normally capped at certain percentages). Besides, the new Fédération Internationale de Football Association (FIFA) Football Agent Regulations, under which the agent must perform services as a natural person, may bring complexities to the tax situation.  

From the Portuguese perspective, Martins explained that FIFA’s recent regulatory changes prevent clubs form paying agents’ fees on behalf of the player. Prior to these changes the payment was considered as a benefit in kind, subject to PIT (personal income taxes), WHT (at the club level) and taxes on the payroll. With the new FIFA regulations, under which the payment to the agent must be conducted partially (50 per cent) by the player, the payment is subject to PIT and is not tax deductible at the player level, and the agent might need to file a tax return in Portugal and pay applicable taxes, unless there is a treaty in place.

Carsten Schlotter highlighted that in Germany the circumstances of each case are decisive, both for the wage tax and VAT purposes. Clubs are typically entitled to a VAT input deduction for services provided by a player’s agent to the club. Agreements between players and clubs are required and play an important part in in the tax treatment applicable. The FIFA regulations are not decisive for tax classification, but function as an indicator of the parties’ intended conduct. Under German income tax law, a player may deduct payments to their agent as income-related expenses.

Finally, under Italian law, Andrea Gallizioli clarified that commission due to the agent and paid by the club rather than the athlete are qualified as a fringe benefit, with consequences such as: taxable income for PIT purposes at the player level and, for the club, a WHT on the payments and the non-deductibility for CIT (corporate income tax) purposes. Gallizioli added that the new FIFA regulation may have potential implications for Italian taxation.

Image rights

The following topic was initially presented by Bodoh, who used the Lionel Messi case to explain the possible complexity concerning player remuneration in the US. As a brand ambassador not only for Inter Miami CF, but also for the whole Major League Soccer (MLS) franchise, Messi will receive payments for image rights, a salary, a signing bonus, an ownership stake/participation in the management of the club upon his retirement and a portion of the monetary gain from new subscribers related to Apple’s MLS coverage.

For US tax purposes, Bodoh explained that the possible issues relate to the timing of payments, the treatment of payments as ordinary income or capital, the possibility of triggering a deemed or actual US partnership situation, the treatment of each type of consideration, transfer pricing on image rights and the US state tax nexus.

Gallizioli commented on the Cristiano Ronaldo case in Italy, who, after moving in 2018 and opting for the ‘neo-residents’ tax regime, submitted a request to the tax authorities asking for the correct qualification, and the related territorial criteria, for income derived from the economic exploitation of personal image rights (not managed by the Italian club), but did not get a clear response. Due to this lack of clarity, he was taxed on all his image rights income and later sought a refund.

The panellist reported that both tax authorities and the Italian courts ruled that the particular income should be classified as self-employment income, and not as income from the exploitation of intellectual property rights, income from employment, or income from a self-employed activity not performed professionally. In addition, such income should be considered as being produced where the image rights are managed (ie, the player’s residence, which in this case was Italy).

Roberto Duque Estrada explained that in Brazil a statutory maximum of 40 per cent may be paid to a player (or star company) as payment for image rights not classified as wages, and that income received from third parties are also not deemed as such.

Martins added that in Portugal splitting between wages and image rights is possible, and there is no clear allocation rule. The player or his star company may assign his image rights to the club or the national football association. PIT due by the player may be as high as 53 per cent, so the incorporation of a star company is usual. Martins pointed out that the use of a star company to exploit image rights may be challenged if it fails to meet the economic substance test within the Portuguese General Anti-Abuse Rule (GAAR).

Martins also commented on the Fernando Santos case. The case involved a former coach of the Portugal national team who was – together with his technical staff – hired through his star company (ie, not as an employee) under an image rights agreement and a services agreement. Fernando was assessed for PIT, on the grounds of artificiality and a lack of substance and commercial reason in the interposition of the entity. The case ruled in favour of the coach, on the grounds that there was no tax advantage, because the sum of the statutory rates of the CIT and PIT produces a neutral tax outcome, due to dividends distributions, and it was decided that there was a legitimate reason for hiring the entity (eg, to avoid disputes with technical staff).

Regarding the exploitation of image rights by clubs, Schlotter explained that the split is not accepted for German tax purposes, and the application of a model employment contract is mandatory, under which the whole remuneration is treated as salary. The assignment of image rights to a company for sponsorship/advertisement partnership purposes is possible, although some issues may arise relating to tax residency (place of management), substance, controlled foreign corporation (CFC) rules and transfer pricing.

Novaes explained the situation in Spain, according to which image rights remuneration transcends sports and should not be considered as a salary. Novaes made reference to the Messi case, who the Spain tax authorities challenged for tax fraud, based on the argument that he could not transfer his individual image rights to a star company in Uruguay and Belize, and that the activity was actually performed in Spain. The ruling in the case went against the player.

Investments in clubs and sport associations

Duque Estrada started the discussion on the investment in clubs. Referring to the Brazilian SAF regime, into which several former Brazilian associations (clubs) were transformed, he explained that it is created via a drop down of the clubs’ assets and a capital investment, and argued that it is very attractive for investment, since the new sports company is taxed at a 5 per cent rate on gross revenues, on a cash basis, which include labour contributions (wage taxes). However, the regime does not cover player transfers.

On top of that, Bodoh reasoned that in the US sports teams are taxable entities, but leagues may be exempt. In practice, some leagues chose to drop their tax-exempt status, due to qualification challenges, operation restrictions and public perception.

Martins added that in Portugal, a new law has allowed clubs to organise themselves as a limited liability company (public or private), subject to the same taxation as all other entities. Joint tax liability, relating to existing debts at the time of the transfer of assets, applies to public companies, up to the limit of the assets transferred.

Following this, Schlotter spoke about the corporate organisation of German football clubs. He explained that there is no tax regime for football clubs and that traditionally they are organised as non-profit associations, whereas the professional team is a taxable economic sphere, subject to CIT and trade tax. He added that, to receive external investment, a spin off into a corporation must occur, but the association must maintain the majority of the votes (the 50+1 rule).

Residency and taxation

On this topic, Gallizioli described the main features of the Italian ‘impat’ tax regime, which was applicable to all professional sportspersons until 21 May 2022, but was subject to modifications and limitations in scope. The regime applied for five years (or ten years under certain conditions) and provided for a 50 per cent tax exemption on the entirety of the player’s remuneration (if under an employment contract).

For Gallizioli, the applicable conditions and limitations (minimum age and income) are questionable from a constitutional perspective. Gallizioli also explored the ‘new residents’ tax regime (since 2017, for any taxpayer), constituting in the payment of a substitutive tax of €100,000 for each tax period on foreign source income and foreign assets, for up to 15 years, and described the scope, and pros and cons, of each regime.  

Conclusion and final remarks

To conclude, Duque Estrada closed the panel and thanked the delegates present.