Italy: footballers’ tax liability resulting from agent’s remuneration paid by the clubDr Mario Tenore
The topic of agents’ fees has given rise to a notable tax dispute in Italy between the clubs and the players on one hand, and the Italian tax authorities on the other. Often, a club will appoint an agent when transferring a player and will pay that agent a fee. Italian tax authorities argue that the agent’s services are actually provided for the benefit of the transferred player, and so the fee should be treated as a taxable income in the hands of the player when assessing the player’s tax liability. Unsurprisingly, the players dispute this.
In late 2013, to try to end the dispute, the Italian legislator enacted a special provision known as “Decree 917/1986”,1 which deems a portion of the agent’s fee payable on the transfer of a player to constitute a taxable income in the hands of the player. The provision targets payments made to agents appointed directly by the clubs to conduct negotiations on their account and to agents (if any) appointed by the player. The rule has a triggered a conspicuous number of Court decisions, not always giving consistent results.2
The article explains the effects of Decree 917/1986 as it applies to payments made by Italian clubs to agents on players’ transfers.3 The author understands that similar issues are also being discussed in other major EU jurisdictions (for example Spain, UK and the Netherlands).
Italian tax rules applicable to football players
The professional sporting relationship between a club and a player is regulated by Law no. 91 of 23 March 1981 (hereinafter “Law no. 91/1981”).4 Under Law no. 91/1981, professional footballers are deemed to perform their services in the framework of an employment relationship. The main features of this employment relationship are (i) the provision of a consideration for the activity performed by the player and (ii) the carrying out of the activity on a continuous basis.5
As a consequence, income earned by football players in the framework of an employment contract with an Italian club is regarded as employment income.6
Under Italian tax law, employment income is taxed:
- on a cash basis, i.e. the income is taxed in the calendar year in which the employee materially receives the payment of the remuneration;7 and
- on a gross basis, i.e. expenses that are related to the production of income are non-deductible.
In general, employment income includes any remuneration that is directly or indirectly paid by the employer (the club). Such income encompasses every payment, either in money or in kind (including gratuitous payments), received by the employee/player in the framework of the employment relationship.8
In case of benefits in kind, the related value is generally determined by reference to the market value (Art. 9 Decree 917/1986), unless special rules are applicable for the computation of the fringe benefit’s amount (such as for cars and motor-vehicles).
Last but not least, Italian clubs act as withholding agents with regard to the remuneration paid to the players, and thus levy a non-final withholding tax upon the material payment of such remuneration. The employment income of the player must then be included in the overall income which is subject to personal income tax (the tax burden may reach up to 43% for income exceeding euro 75,000) plus municipal and regional sur-taxes (up to a maximum of 2%) and a solidarity charge (at the rate of 3%) levied on the portion of annual personal income exceeding euro 300,000 (this charge is due up to the fiscal year 2016).
The peculiarity of payments made by football clubs to agents and intermediaries
Players’ agents provide their services upon consideration, and common experience shows that they are remunerated by the clubs only, and quite often by the club that executes the acquisition of the player. Only in a limited number of cases, players bear the economic burden of the agent’s remuneration.
This practice has triggered the attention of Italian tax authorities, which have been claiming over the past years that agents, although formally appointed by the clubs, were in fact mainly or exclusively acting in the benefit of the players.
From a regulatory point of view, this practice was also in line with previous Italian Agents’ Regulations (applicable before 1st April 2015),9 with Art. 16 para. 4 providing that:
“after the stipulation of a contract with a club, the player [could] express his written consensus authorizing the club to pay directly the agent on its behalf”.10
Why a payment made to an agent can determine a tax liability for the player?
Over the past years, Italian tax authorities audited many Italian clubs with regard to the payments made to agents, and in several cases the audits ended up with the issuance of tax assessments and/or deed of penalties notified to the clubs and to the players.
According to Italian tax authorities’, the tax audits demonstrated that the activity of the agent was rendered exclusively or predominantly in favor of the player, and not the club (despite the clubs bearing agents’ costs). Accordingly, the payment of the agent’s remuneration by the club constituted an indirect economic benefit for the player whom, in the absence of such payment, would have paid the agent himself and borne the related cost.
Based on the above, Italian tax authorities have claimed the existence of remuneration in kind for the players (a so called “fringe benefit”), which as such is taxable as employment income. In essence, according to the Italian tax authorities, a portion of the player’s remuneration was diverted to the agent. By doing so, the parties involved could obtain some tax advantages. In particular, the clubs could deduct in full the payments made to the agents/intermediaries from the taxable basis relevant for regional tax on productive activities (players’ remuneration would have been otherwise non-deductible) and could deduct VAT (where applicable on the agent’s fee), whereby the players could pay less personal income tax in Italy as a consequence of a lower taxable income.
For these reasons, following audits, Italian tax authorities often claimed:
- the non-deductibility of agents’ fees for purposes of Regional Tax on Productive Activities
- the non-deductibility of VAT (if any) charged by the agents, on the assumption that such VAT would have not been due had the club paid an employment remuneration (instead of a cost for a service);
- the failure to levy withholding tax on the agents’ fee, which had been levied would the club have paid an employment remuneration;
- a higher taxable (employment) income in the hands of the players.
To counteract the aforementioned phenomenon, the Italian legislator enacted in 2013 a specific provision: Decree 917/1986.12
Analysis of Decree 917/1986
According to Decree 917/1986, an amount equal to 15% agent’s fee incurred by the football club vìs à vìs an agent is now deemed to constitute a taxable income in kind for the player, namely a taxable fringe benefit. From such amount, the player is nevertheless entitled to deduct the fees paid to his own agent (if any). The provision has introduced an unrebuttable presumption, namely that the player is unable to give contrary proof that he did not receive any benefit from the activity of the agent (for which the club incurred the related fee).
Decree 917/1986 is meant to apply to all professional athletes and thus it is limited (as far as football is concerned) to players only. Due to its clear wording, the provision does not apply to persons other than players (such as coaches, trainers etc.).
As far as the objective scope is concerned, Decree 917/1986 applies where the club bears a cost for “the activity of assistance [ ... ] related to sport performances”.14 The provision only considers as relevant the assistance provided by the agent with regard to the sporting performance of the player. In particular, Decree 917/1986 applies even if the activity of the agent is provided for the resolution or the extension/renewal of the existing contract with the club. The reference to the term “assistance in the negotiations of the sport’s performance”15 does however carve out from the application of the provision the negotiations regarding other services, such as the exploitation of image rights. Negotiations regarding image rights are therefore outside the scope of the provision as they are not directly connected to a sport performance16.
Decree 917/1986 provides that the fringe benefit is equal to the "cost of the service borne by professional sports clubs in negotiations [taken] to the extent of 15 percent".17 From the amount so determined, the provision allows the player to offset "the sums paid by the athlete to its agents for the provision of assistance under the same negotiations". From the wording of the provision it is therefore clear that it applies even if the player has appointed his own agent. In such a case, it is questionable whether the player may derive in fact any benefit from the activity rendered in the course of the negotiation by an agent who has been appointed by the club (it should be recalled that the player is not allowed to provide contrary proof).
A numerical example
The effects of the provision may be described with a simple numerical example. Let’s assume that (i) the club appoints an agent and pays for the services provided by the latter a cost equal to 100; (ii) the player also appoints his agent and pays the latter a fee equal to 5, the fringe benefit taxable in the hands of the player will be equal to 10. The amount of the fringe benefit is determined as the difference between 15 (15% * 100) and the sums paid by the player in favour of the agent. The income of 10 will be included in the overall income of the player and will be subject to personal income tax in the hands of the latter. It should be noted that such tax will be withheld directly by the club and accordingly it will result into a lower net income for the player. Moreover, the application of the provision does not hold relevant the fact that the agent may also himself be subject to tax in Italy on the fee, with the ultimate consequence that the application of Decree 917/1986 will trigger an instance of economic double taxation.
The application Decree 917/1986 raises a number of interpretative issues. The first doubt arises from the fact that the provision does not clarify which payment triggers its application, namely if the provision applies to inbound transfers, i.e. to payments made to the club which acquires the player; or to outbound transfers, i.e. to payments made to the club that sells the player. In the author’s view, the application of the provision should consider only inbound transfers, as the alleged benefit of the player should be connected to the future employment relationship with the acquiring club.
The definition of “agents” is far from clear. The question is whether the provision is applicable in case of any payments from the club relating to the "negotiations of the sport’s performance" and, in particular, if it applies in the case of payments made to intermediaries without the qualification of FIFA agent. The issue is partly overcome following the deregulation introduced by the FIFA Regulations, which have been implemented in Italy with the new Regulation for the services of sports agent (applicable as from 1st April 2015), which has overruled the status of the FIFA agent replacing it with that of intermediary.
All in all, the provision is surrounded by legal uncertainty and clarifications from Italian tax authorities would be more than welcome to shed some light on its proper interpretation and application.
Decree 917/1986 was meant to achieve two goals: the simplification of audit activities, and the preemptive determination of the alleged benefit derived by the player relating to the payment of the agent’s fee by the club.
The provision however raises severe doubts as far as its compatibility with Italian Constitutional principles is concerned, in particular with the principle of ability to pay.
This is mainly due to the fact that the provision is automatically applicable every time a club makes a payment to an agent for the assistance provided by the latter in the course of a negotiation regarding the transfer of a football player.
Such a payment triggers automatically a higher taxable income for the player, whom may also not be aware of the amount paid by the club or even worse may not be aware at all of the payment.
In other word the player may be exposed to an extra-tax burden without a corresponding economic benefit (i.e. an extra-income).
Further doubts as far as the compatibility of the provision with Italian Constitutional principles arise from the fact that Decree 917/1986 is based indeed on an unrebuttable presumption and accordingly the player is unable to provide contrary evidence proving that he did not derive any benefit from the agent’s activities vìs à vìs the club.
There are still too many points in the application of the provision that remain unclear (even despite it being in force since 2013); and there are too many technical aspects that require further clarification by the Italian tax authorities.
Finally, the application of the provision should not be coordinated with newly introduced FIFA Regulations on the Working with Intermediaries18 (implemented in Italy as from 1st April 2015) whose Art. 8(3) provides:
“If a player and a club wish to engage the services of the same intermediary within the scope of the same transaction under the conditions established in paragraph 2 above, the player and the club concerned shall give their express written consent prior to the start of the relevant negotiations, and shall confirm in writing which party (player and/or club) will remunerate the intermediary. The parties shall inform the relevant association of any such agreement and accordingly submit all the aforementioned written documents within the registration process (cf. articles 3 and 4 above).”
It is far from being clear how the legal presumption embedded in Decree 917/1986 will coordinate with this section of the FIFA Regulations.
We can only keep on waiting for a final clarification from the Italian tax authorities.
This work was written for and first published on LawInSport.com (unless otherwise stated) and the copyright is owned by LawInSport Ltd. Permission to make digital or hard copies of this work (or part, or abstracts, of it) for personal use provided copies are not made or distributed for profit or commercial advantage, and provided that all copies bear this notice and full citation on the first page (which should include the URL, company name (LawInSport), article title, author name, date of the publication and date of use) of any copies made. Copyright for components of this work owned by parties other than LawInSport must be honoured.
- Tags: Agents | Decree 17_1986 | FIFA | FIFA Regulations on Working with Intermediaries | Football | Governance | Intermederies | Italy | Netherlands | Regulation | Serie A | Spain | Tax Law | United Kingdom (UK)
- A guide to the FA’s Regulations on Working With Intermediaries
- How the UK taxes overseas athletes and what the consequences are for UK sport
- How financial regulation affects competition across Europe’s big five football leagues
- New FIFA Regulations On Working With Intermediaries
About the Author
Dr. Mario Tenore practices at Maisto e Associati (Milan office) and is member of the International Tax Entertainment Group (“ITEG”). He obtained a PHD in tax law (cum laude) from the II University of Naples (Italy) and an LL.M. Degree (cum laude) in international tax law from the University of Leiden (The Netherlands). One of his areas of expertise is taxation of entertainers and sportspersons. In football matters, he provides advice to clubs, players and their agents in relation to tax issues on domestic and international transactions. He has gained in particular experience on tax issues arising in respect of international transfers, management of image rights, payments to agents and others.He has extensively published in international tax journals and books and he is lecturer on international tax law matters at several academic masters and programs in Italy and Europe.