Italy: EU Commission investigates new Italian tax measures in favour of sport clubs

In January 2004 the European Commission asked the Italian Government for some clarifications on certain rules applicable to sport clubs that were introduced, or extended, with Law no. 350 of December 24, 2003 (?2004 Italian Finance Act?).

The EU Commission is investigating whether the provisions of the 2004 Italian Finance Act may constitute a breach of Article 87 of the EC Treaty prohibiting the granting of State aids that distort competition. The Italian Government had twenty working days to respond to the EU Commission?s request for information. As of today the outcome of this enquiry has not yet been disclosed.

The EU Commission requested clarifications on the provision introducing a type of amnesty with regard to the contributions due by sport clubs to the mandatory insurance scheme managed by the Italian Agency for accidents at work place (?INAIL?). It also posed questions on the special tax credit regimes granted, or extended, by the 2004 Italian Finance Act, to certain Italian sport clubs.

i) INAIL amnesty

In Italy employees are covered by a mandatory insurance scheme against accident at the work place, including death and permanent or temporary disability. The scheme is managed by INAIL and the cost thereof is fully borne by the employer. The premiums must be paid to INAIL even if the sportsman is covered by a private insurance policy. The amount of the premiums payable by the employer varies according to the risks inherent to the business activity of the employer. The evaluation of such risks is made by the Ministry of Labour. Article 6 of Decree no. 38 of February 23, 2000 provides that the insurance against accidents at the work place is compulsory also for employers of professional sportspeople. For this purpose, professional sportspeople are athletes, coaches, trainers and managers who are engaged in such activities on a regular basis. At present, a few Italian sport clubs are apparently in default, totally or partly, of their payment obligations to INAIL.

Article 4(198) of the 2004 Italian Finance Act allows sport clubs to benefit from what is, effectively, a sort of amnesty vis-?-vis INAIL and pay the overdue premiums for years 2000, 2001 and 2002 without the levying of the penalties that would otherwise be applicable (and according to a more lax payment schedule). The election for the INAIL amnesty prevents any future assessment by INAIL for the relevant years. To benefit from the amnesty, sport clubs must pay all the amounts still due by November 30, 2004 or, alternatively, in two equal instalments by, respectively, September 30, 2004 and April 30, 2005.

ii) Tax credit to certain football clubs

In order to promote the breeding of young football players, Article 4(196) of the 2004 Italian Finance Act enhances the benefits (in the form of a tax credit) originally introduced by Article 145(13) of Law no. 388 of December 23, 2000 (?2001 Italian Finance Act?) in respect to football clubs playing in the domestic C1 and C2 leagues (third and forth divisions). The tax credit is available for each employment agreement entered into between the club and each player aged between fourteen and nineteen (increased to twentytwo if the agreement is the first professional agreement entered into by the player).

In particular, for each new qualifying agreement with a football player, Article 145(13) of the 2001 Italian Finance Act and Article 4(196) of the 2004 Italian Finance Act provide for the following benefits:
i) a tax credit equal to 30% (previously 10%) of the employment income paid to the player up to the maximum amount of ? 5,264.57 per year;
ii) a social security contributions relief for each qualifying player equal to ? 516.45 per year. Moreover, a 3% reduction is allowed of the total social security contributions due by the football club for each trainer.
iii) Additional tax credit to certain football and basketball clubs.

Article 4(200) of the 2004 Italian Finance Act grants an additional tax credit to football clubs playing in the domestic C1 and C2 leagues and to basketball clubs playing in the domestic A1 and A2 leagues, provided that in the tax year 2004 they increase the recruitment of young EU football players aged between fourteen and twenty-two.
In particular, a tax credit equal to 15% of the employment income paid to the players is granted to the above mentioned clubs for each qualifying player exceeding the number of players employed in 2003. However, the tax credit cannot exceed the amount of ? 5.164 for each player.

The tax credit is granted provided that:
i) the percentage of EU nationals against the total number of players employed by the club is higher than the average of the previous three years;
ii) all the INAIL and tax obligations are complied with.

The tax credit does not constitute income for the purpose of the corporate income tax (?IRES?) and the regional tax on the value of production (?IRAP?). It can be utilised, starting from January 1, 2004, exclusively to offset IRES, IRAP as well as VAT, withholding taxes, and social security contributions due, and in general, all taxes payable by the sport club.

The tax credit can be utilised up to the amount allocated by the Government (i.e. 1,5 millions of Euro for years 2004 and 2005).