Does the winner take it all: benefit and tax liability? Not always…

by Leonardo Reggio[1], Marco Ettorre[2] and Luca Ferrari[3], in cooperation with Michael Rutili[4], with special thanks to Marco Grieco[5]

Italy introduces new rules on the tax treatment of payments made by sports clubs to sports agents in an attempt to bring clarity to an uncertain area of taxation.


Changes to the existing legislation

Art. 1, paragraph 160 of the Law of 27 December 2013, no. 147 (Legge di Stabilità 2014, “Stability Law 2014”)) has added to art. 51 of the Italian Income Tax Code (Testo Unico delle Imposte sui Redditi, “TUIR”) the new paragraph 4bis, which reads[6]:

In order to determine the amounts referred to in paragraph 1[7] in the case of professional athletes, the costs incurred by professional sports clubs in the context of negotiations relating to the sporting services of professional athletes themselves is also to be taken into account limited to 15%, net of any amounts paid by the athlete for the assistance activities provided by their agents in those same negotiations.

The new rule, therefore, introduces a presumptive mechanism, whereby only 15% of the costs incurred by sports clubs in relation to the assistance provided by agents in the context of negotiations concerning the “sporting services” of the athletes are calculated (as a benefit) in order to determine the income of professional athletes. In addition, the new rule gives the possibility to reduce this amount (15% of the costs paid by the sports clubs to the agents) by taking into account any amounts paid by the athlete to the same agent for assistance provided in those same negotiations.

By way of a practical example, if a club pays € 100,000 to the sports agent for their services during the negotiations and the athlete pays € 5,000 to that same agent for services provided during the same negotiations, then € 10,000 must be added to the taxable income of the professional athlete as a fringe benefit.

The aim of this new provision is to put an end to an age-old bone of contention between sports clubs and the Italian tax authority regarding the correct tax treatment of fees paid by sports clubs to agents in the context of negotiations involving professional athletes.

The tension arises as, on the one hand, according to the practice of sports clubs, these amounts are intended to remunerate the agent for services provided in the exclusive interest of the club, but, on the other hand, the tax authorities often consider those same amounts to be effectively paid by the sports club on behalf of the athlete for services provided by the agent in the sole interest of the athlete and for this reason should be considered as a taxable fringe benefit.

To fully understand the reason behind these conflicting views and the adoption of the new rule illustrated above, one must first understand the tax treatment of payments made by clubs to sports agents and that of remuneration received by athletes from clubs.


Tax treatment of payments made to sports agents

By way of background, the Law of 23 March 1981 no. 91, which governs sporting activities in Italy, provides that a sports club may enter into contracts with professional athletes only if it is established as a public limited company (“S.p.A.”) or a private limited company (“S.r.l.”).

Because of their legal form, according to art. 73, paragraph 1, letter a)[8] and art. 81, paragraph 1, of TUIR, the total income of these companies will constitute business income, regardless of its origin, and be subject to IRES (Imposta sul Reddito delle Società, “Corporation Tax”) at a rate of 27.5%.

Furthermore, according to art. 3 of the Legislative Decree dated 15 December 1997 no. 446, sports clubs (established as S.p.A. or S.r.l.) are also to subject to IRAP (Imposta Regionale sulle Attività Produttive, “Regional Tax on Productive Activities”) and the net income, which is determined in accordance with art. 5 of the same Decree, is subject to a tax rate of 3.9%. Generally, the net income will correspond to the difference between revenue and production costs minus labour costs, interest payments, provisions, amortisation and credit losses.

Finally, according to art. 4 of Presidential Decree of 26 October 1972 no. 633 sports clubs are also subject to IVA (Imposta sul Valore Aggiunto, “Value Added Tax”).

Moving back to the main subject of this article, it is worth noting that the costs incurred by a sports club to engage a professional athlete must be recorded for accounting purposes as an intangible asset and depreciated to reflect the duration of contract.

From a tax point of view, these costs can be deducted for IRES purposes if they respect the general principle of “inherency”[9] and in accordance with art. 103, paragraph 2 of TUIR[10].

It is then established practice for sport clubs to treat amounts paid to sports agents as a cost inherent to their business. More specifically, these amounts are treated as a charge associated with the costs in acquiring an athlete’s services (i.e. an intangible asset) and are therefore capitalised and depreciated by applying the same criteria of depreciation of the original intangible asset. The depreciation so determined may then be deducted from the IRES and IRAP tax base.

Additionally, any VAT applied on invoices issued by sports agents can be entirely deducted by the sports club, pursuant to art. 19 of Presidential Decree no. 633/72.


Tax treatment of professional athletes’ remuneration

Art. 3 of the Law of 23 March 1981 no. 91 indicates the relationship between a professional athlete and a sports club as generally constituting an “employment contract”.

From the athlete’s point of view, the taxation of any relevant income will be governed by the provisions of art. 49 and art. 51 of TUIR.

In particular, art. 49 states that:

Income from employment shall be that arising from a relationship having as its object the performance of work under any description as an employee of and under the direction of others […]”

whilst art. 51 of TUIR reads that:

Income from employment shall consist of all compensation in money or in kind, for any reason, received during the tax period, even in the form of donation, with reference to an employment relationship.”

Hence, salary payments, fringe benefits and any other additional payments received by the athlete will be taxed as employment income and subject to income tax (Imposta sul Reddito delle Persone Fisiche, “Private Individuals Income Tax”, “IRPEF”).

From the sports club perspective, any costs incurred in relation to the athlete’s sporting services, including those incurred in cash or in kind by way of donations (fringe benefit) will be deductible from the taxable income for IRES purposes but will not be deductible from the taxable base for IRAP purposes.

In addition, if the sports club enjoys services from third parties (e.g. use of sports agents) which are passed on to the athletes as fringe benefits, the relevant VAT charged on the invoice will not be deductible by the sports club because of lack of inherency to its business.


The issue of the tax treatment of sports agents’ fees

As we have already discussed, the tax treatment of sports agents’ fees will depend on the effective beneficiary (the sports club or the athlete) of the agent’s services.

Where the agent’s services can be deemed to be solely in the interest of the club, then this can be deducted from taxable income in its entirety for IRES and IRAP purposes. Similarly, any VAT applied to invoices will be deductible from the VAT taxable base.

In fact, as illustrated above, in the case where the agent’s performance is rendered solely in the interest of the club then its costs can be considered by the same club entirely deductible from taxable income for IRES and IRAP. Also the VAT charged in the invoice can be deducted from the VAT taxable base.

In contrast, in cases where the agent’s services are rendered solely in the interest of the athlete, any costs incurred by the club should be attributed to the athlete as fringe benefit and taxed accordingly. This will be deductible for IRES purposes but not for IRAP and VAT. Also, it must be added that the sports club will also act as a “withholding agent” for IRPEF purposes.

In order to identify the nature of income constituted by the agent’s fees, one must refer to the relevant regulations[11] and law.

The football regulations for instance define the agent as a person who:

“[…] by virtue of a mandate for money’s worth conferred in accordance with these Regulations, handles and facilitates deals between a professional football player and a professional football club, […], in order to stipulate a contract for the performance of sporting services, either by way of a transfer agreement between two clubs or by assignment of player’s contract.[12]

Obviously, the sports agent may carry out his activity either on behalf of the player or of the club. For this reason, the rules provide that the sports agent must conduct his activity in a transparent and independent way, and that:

the agent who has received one or more assignments must represent and protect the interests of each of his clients, […].”[13]

Furthermore, sports agents have an obligation “to avoid any conflict of interests[14] and are banned from “representing the interests of more than one party in the drawing up of a contract.[15]

These rules reflect the fundamental tension between the interests of sports clubs as opposed to those of the athletes in this area. Of course, whilst the sports club’s interest is to retain the best athletes at the lowest cost possible, the player will be seeking the highest remuneration possible.

For this reason, it is clear that a sports agent cannot be considered to be a “mediator”, in accordance with art. 1754 of the Italian Civil Code which states that:

The mediator is that person who connects two or more parties in order to reach a deal but is not in a cooperative, subordinate or agency relationship with any of them.

Essentially, the mediator acts as a mere intermediary between the parties in an independent manner without protecting the position of either party and, where a deal is closed as a result of his work, he is entitled to receive a commission from each party.[16]

The sports agent, instead, provides his assistance activities in the exclusive interest of one party (athlete or club), and, consequently, should be remunerated only by the person who appointed him and for whom he acted. For this reason, the activity of a sports agent is better described as a sort of consultancy arrangement.

As it transpires from the football regulations referred to above, the agent cannot represent more than one party within the same negotiation as they must act in the exclusive interest of the party which gives the mandate.

Therefore, in a scenario where the agent is engaged by the club, there is no doubt that the costs incurred by that club can be considered as inherent to its business and deductible in the manner described earlier in this article.

Similarly, in a case where the agent is assisting the athlete and by virtue of a subsequent agreement the club undertakes to pay the agent on behalf of the athlete, the costs incurred by the club should certainly be treated as fringe benefits enjoyed by the athlete and taxed accordingly (see above).

In practice, however, it is very often the case that a sports agent will be providing assistance activities in the interest of both parties (the club and the athlete) in the course of a negotiation or that the sports clubs will remunerate agents for services which are in the exclusive interest of the athlete. In these cases, the clubs will often consider these costs inherent to their business and provide, consequently, to deduct these costs from taxable income for both IRES and IRAP purposes, as well as any VAT charged on relevant invoices.

This practice has been strongly resisted by the Italian tax authorities, as it obviously enables the sports club and the athletes to enjoy a more favourable tax treatment than would be the case if they considered these costs as taxable fringe benefit enjoyed by the athletes.
Although no official publication has been released on this topic, a circular was released on 23 September 2009, based on a number of tax enquiries into the affairs of a number of football clubs with a particular focus on the remuneration of agents. In this document, it is stated any costs incurred in the exclusive interest of an athlete (including those in connection with the services of sports agents) should be treated as taxable fringe benefits attributable to the athlete.

The circular also divided the services provided by agents into two categories:

a   intermediation, support and consulting services in relation to contracts between sports clubs and athletes; and

b  services other than those mentioned above, such as assistance with the athletes’ private and family issues, press relations, reputation management, health insurance, etc.

Reality is that often the services that are rendered by sports agents do not fall neatly in one of the above categories and the same services (see, for example, reputation management) may be in the interest of both the club and the athlete, making them hard to automatically class as fringe benefits.

For these less than clear-cut scenarios, the burden is on the tax authorities to demonstrate who has enjoyed greater benefit from the services in question and to what extent. This often proves to be a tricky task, as agreements between clubs and agents often do not specify the services in question and formal agreements between agents and athletes are not common.

Recent decisions have seen both the tax authorities succeed in demonstrating that payments to agents amounted to benefits on top of the athlete’s remuneration[17] and fail to provide sufficient evidence that the services were provided by the agent in the exclusive interest of the athlete.[18]



What is now clear is that the proper tax treatment of fees paid by clubs to sports agents depends on identifying who is the effective beneficiary of the services provided by the agent. In practice, this is often difficult either because of the unspecific nature of the activities provided or because of absence of a formal written agreement between the parties.

This uncertain situation has, on occasions, led to the system being abused both by clubs and athletes.

The recent changes in the law described in this article seek to address this problem, namely, by introducing the irrefutable presumption that 15% of any payment made by a club to the agent constitutes a fringe benefit taxed in the hands of the athlete, as described above.

This new presumption should clarify this complex area of taxation. However, it can be argued that:

–   the 15% rate remains an arbitrary figure that will rarely reflect the complex reality of negotiations involving sports agents;

–   the irrefutable presumption introduced into the legislation appears to infringe one of the fundamental principles of taxation[19] enshrined in the Italian Constitution (that is that any taxation should be connected to an attributable income, wealth or spending) and does not seek to address the issue of trying to qualify the nature of the services provided by the sports agent.


[1] Tax advisor at CBA Studio Legale e Tributario.

[2] Partner at CBA Studio Legale e Tributario.

[3] Partner at CBA Studio Legale e Tributario.

[4] Solicitor at Withers LLP.

[5] Trainee at CBA Studio Legale e Tributario.

[6] Free translations of the authors are used in this article.

[7] Art. 51, paragraph 1, TUIR, states that: “Employment income shall consist of all amounts in money or in kind, received for any reason during the relevant tax period, even by way of donation, with reference to an employment relationship.

[8] Art. 73, paragraph 1, TUIR, states that: “Are subject to corporation tax:

a Public limited companies (S.p.A.), limited partnerships (S.a.p.a.), limited liability companies (S.r.l.), cooperative societies and mutual insurance companies, as well as European companies referred to in Regulation (EC) n. 2157/2001 and European cooperative societies referred to in Regulation (EC) no. 1435/2003 residents in the State;

b …omissis;

c …omissis;

d …omissis.”

[9] On the basis of the provision of art. no. 109 of TUIR.

[10]Depreciation charges connected to concession rights and other rights recorded in the balance sheet are deductible in an amount corresponding to the period of use provided for in the contract or by law.

[11] Reference is made to the rules contained in the Players’ Agents Regulations issued by the Italian Football Federation (Federazione Italiana Giuoco Calcio – FIGC), published in the FIGC official statement no. 142/A of 3 March 2011 in accordance with the rules issued by the Fédération Internationale de Football Association (FIFA).

[12] Art. 3 of the Players’ Agents Regulations.

[13] Art. 3, paragraph 4 and art. 4, paragraph 1, of the Players’ Agents Regulations.

[14] Art. 16, paragraph 8 of the Players’ Agents Regulations.

[15] Art. 20, paragraph 2, of the Players’ Agents Regulations.

[16] See art. no. 1755, paragraph 1, of the Italian Civil Code.

[17] See in this regard decision no. 175 of 23 October 2009 of the Provincial Tax Court of Rimini and decision no. 1 of 18 January 2010 of the Provincial Tax Court of Rome where the judge held that: “[…] The economic intervention of the sports club, who was under no obligation and freely chose to do so, can only be viewed as an extra benefit and economic utility attributable to its employee (i.e. the athlete) in addition to those provided for in the contract of employment, and as such must be found to fall in the remit of those included in the provisions of art. 51 of Presidential Decree n. 917/86.”

[18] See in this regard decision no. 22/31/13 of 25 February 2013 of the Regional Tax Court of Florence.


[19] Art. 53 of the Italian Constitution, “Principio della capacità contributiva”.