Portugal: Taxation of image rights

by Francisco Cabral Matos[1] and João Riscado Rapoula[2]


Introduction – taxation of image rights: in theory

According to Portuguese tax rules, resident sportspersons are subject to tax on a worldwide basis, similar to any other resident individuals. To date, there is no specific regime applicable to sportspersons in particular, notwithstanding the possibility of applying to, and benefiting from, the tax benefits and advantages available in general terms, such as the well-known non-habitual tax residents regime.

With respect to image rights, it should be said that the Personal Income Tax Code (PITC) foresees different types of income subject to tax, giving rise to specific deductions and different rules concerning the computation of the taxable amount and the assessment of the tax due. In general terms, income obtained directly by sportspersons in connection with their activities may qualify as “employment income” or as “professional income” depending on the nature of the contractual relationship agreed upon with the paying entity. However, the fact that sportspersons may also derive income from the use of their image rights gives rise to a very peculiar situation.

In general terms, the PITC provides for a different tax treatment of income from image rights, depending on the recipient of such income. When the recipient is the original holder of the image rights, income therefrom is assimilated to “professional income” and is subject to progressive tax rates accordingly. On the other hand, if the recipient is not the original holder of the image rights (e.g. an individual that acquired the image rights from the original holder), such income is qualified as “investment income”.

To add some complexity to the discussion, it may be argued that, due to the general and comprehensive definition of “employment income” – which encompasses all income paid in connection with the professional activity – income from image rights may also be qualified as “employment income” if paid by the employer (e.g. the football club).

The above has a direct impact on the taxation applicable to the sportspersons as active income (“employment income” and “professional income”) which is computed on an aggregated basis subject to tax at progressive tax rates (ranging from 14.5% to 56.5%); passive income such as “investment income” is subject to a flat rate of 28%.


Income allocation: star companies

Despite the fact that sportspersons resident in Portugal are subject to tax on a worldwide basis, they are not prevented from transferring their image rights to a third party for the purposes of exploiting such rights, provided that such entity carries on a genuine business activity (star company).

This option will also have a material impact on the applicable Portuguese rules, especially if the star company is a non-resident entity, subject to Corporate Income Tax (CIT) on a territorial basis and no longer on a worldwide basis, as applicable to resident sportspersons.

As a general sourcing rule, income obtained by non-resident legal persons is considered generated within the Portuguese territory when paid by entities that have their residence, head office, place of effective management or PE therein, which applies to income derived from intellectual property or know-how as well (“royalties”). Furthermore, the CIT code foresees a special sourcing rule, under which income derived by non-resident legal persons from the carrying on within the Portuguese territory of professional entertainment or sports activities qualifies as income of Portuguese source.

Taking the above into account, the Portuguese legislator took a decision not to question (at the outset) the transfer of image rights from an individual into a (non-resident) company, rather than deeming this to be tax avoidance and applying harsher measures (such as disregarding star companies and taxing the sportspersons that are, directly or indirectly, the origin of the image rights). Portugal took a different route and decided to tax the immediate recipient of the income, regardless of the same being a natural or a legal person.

This option raises interesting issues, especially when the image rights are originally linked to a resident sportsperson (subject to worldwide income taxation) but were transferred to a non-resident star company (subject to tax only on Portuguese source income).

Moreover, one may not forget the fact that any tax claim that Portugal may have towards a non-resident star company may be limited pursuant to the application of a double tax treaty (DTT), bearing in mind that, although Portugal generally follows the OECD Model, a few DTTs entered into by Portugal do not yet include art. 17 (2) of the OECD Model, which gave room to discussion regarding the ability of Portugal to impose taxation on non-resident star companies in case of a DTT that did not include this rule.

In a nutshell, when income from image rights accrues to different persons it seems fairly clear from the wording of the current provisions that:

a  income from image rights earned by a resident sportsperson should always qualify as “professional income” (or eventually as “employment income” as well), but not as passive income;

b  income earned by non-resident star companies may only be taxed in Portugal if it arose from the carrying on of professional entertainment or sports activities within the Portuguese territory.


Tax authorities’ approach – taxation of image rights: in practice

In this context, and considering its relevance, the Portuguese tax authorities have issued their official position regarding this matter through Guidance no. 17/2011, which is focused exclusively on payments made in connection with image rights of resident professional football players.

Despite its specific scope, arguably this guidance entails the position of Portuguese tax authorities in respect of income derived from image rights in general and in particular the taxation of non-resident star companies.

The issuance of this guidance was a milestone not only for being the first to address this topic in Portugal, but also for the position adopted by the tax authorities.

Firstly, the tax authorities argue that, whenever the football player is transferring his image rights to a third party, other than his own football club, income therefrom should be qualified as “investment income”, rather than active income. This first conclusion was quite surprising, since it is unclear what would be the legal grounds for tax authorities to uphold such a conclusion. In fact, as mentioned above, the applicable provisions of the PITC expressly mention that income earned by the original owner of the image rights may not be qualified as “investment income” – only if the recipient is a person other than the original holder.

Secondly, it was also surprising to see how the tax authorities take an “automatic” approach towards the assessment of the territoriality criteria for qualifying income from image rights as being sourced in Portugal. When addressing the taxation of non-resident star companies, the tax authorities assume that income will always be connected with a performance realised in Portugal – there are not guidelines as regards:

1  the need to verify the place of performance; nor

2  the criteria for assessing that condition and/or allocating income (i.e. Portuguese-source vs. foreign-source).

Guidance no. 17/2011 simply provides that payments to non-resident star companies:

a  will be subject to withholding tax in Portugal at a rate of 25%;

b  may be fully tax exempt if there is a DTT in force that not yet includes a provision similar to art. 17(2) of the OECD Model;

c  will still be subject to tax where the applicable DTT has a provision similar to art. 17(2) of the OECD Model.


As pointed out, Guidance no. 17/2011 does not take into consideration – at all – the place of the performance that triggered the payment to the star company.


Tax arbitration court – a step into a loophole?

Main findings of the court

The Portuguese Tax Arbitration Court (Court) issued on 15 September 2016 a Decision in which it, amongst other issues, addressed the taxation of image rights of football players (Decision)[3].

The relevant facts are quite straightforward:

–  A, a Portuguese Football Club (Club) paid to D, an Irish Company with no PE in Portugal (D Co.), an amount of € 136,390.00 for the image rights of Mr. E, a football player who signed a contract with the Club;

–  in addition, the Club also made two payments in the amount of € 1,075,265.00 to F, a Dutch company with no PE in Portugal (F Co.), for the image rights of Mr. G, another football player who signed a contract with the Club;

–  the agreements under which the image rights were transferred to the Club had, in both cases, the same length as the employment contract entered into between the Club and the player;

–  the Club has not applied any withholding tax on the amounts paid both to D Co. and to F Co. and the Portuguese Tax Authorities (PTA) proceeded to an additional CIT assessment to the Club aiming at collecting 25% of tax for each of the payments made by the Club.


The Tax Arbitration Court was constituted and these were the main findings resulting from the Decision:

–  the income derived by D Co. and F Co. resulted from the assignment of image rights previously acquired from the football players Mr. E and Mr. G and such gains ultimately constitute income from investment activities rather than from sport activities;

–  the legal relations established between the football players Mr. E and Mr. G and, respectively, D Co. and F Co. were concluded when the rights to exploit commercially the image rights were transferred and the price agreed was paid. Further, the legal commercial relations established between the Club and both D Co. and F Co. are distinct from the relations established between these companies and the football players Mr. E and Mr. G and are not entwined in the employment relations between the Club and both players under the sports employment contracts in force;

–  it was not shown that D Co. or F Co. exercised any influence in the negotiation of the sports employment contract entered into between the Club and the football players Mr. E and Mr. G;

–  there are no legal or contractual rules preventing D Co. or F Co. from keeping the ownership of the image rights and from not assigning them to the Club which would not affect in any way the execution of the sports employment contract between the Club and the football players Mr. E and Mr. G;

–  the players had no intervention in the contracts entered into between the Club and both the entities assigning the image rights;

–  as the income derived by D Co. and F Co. results from investment activities, the rules governing sporting or artistic activities – and establishing withholding taxation – should not be applicable as such income was not paid in consideration of sporting activities performed in the Portuguese territory but rather in consideration of the assignment of image rights;

–  the position of the PTA under which the income derived by D Co. and F Co. as it is closely linked with the employment between the Club and the football players Mr. E and Mr. G, should be considered income from a sporting activity performed in the Portuguese territory should not prevail, as it would imply a unified treatment of the contracts between the players and D Co. and F Co. and of the employment contract between the players and the Club;

–  art. 17(2) of both the applicable DTTs requires a personal performance of the sportsperson, in such quality, to be applicable, which is not the case in the event of assignment of image rights;

–  therefore, art. 17(2) is not applicable in the present situation and the taxing jurisdiction of Portugal should be assessed under art. 7 of the applicable DTTs.


Impacts of this decision: an outlook

It may be that the Decision overlooked several important aspects related to the taxation of image rights of sportspersons.

First of all, the Court approached quite superficially the link between the activity of the players performed in the Portuguese territory and the image rights assigned by D Co. and F Co.

In the view of the authors of this article, it would definitely be important to understand what the image rights consisted of.

For instance, if such image rights would be restricted to the image of the players performing as football professionals of the Club, then the link between the image rights and the sporting activity would be undeniable. However, surprisingly, the Court did not analyse what were the concrete image rights assigned under the contract between the Club and D Co. and F Co.

Consequently, the Court, by adamantly stating that the income derived by D Co. and F Co. constituted income from investment activities rather than from sport activities, also seemed to completely disregard the OECD position on the taxation of sportspersons and, concretely, regarding the image rights in the event the resulting income is derived by another entity.

Indeed, it is expressly assumed by OECD in the Commentary to Article 17 of the OECD Model that, apart from the fees for their actual appearances, “artistes and sportspersons often receive income in the form of royalties or of sponsorship or advertising fees”. It is added by the Commentary that generally “other Articles would apply whenever there was no direct link between the income and a public exhibition by the performer in the country concerned[4]. In other words, if there is a close connection between the intangible income and the activity of sportspersons, art. 17 should apply.

Moreover, in the context of the analysis of the so-called “star companies”, the Commentary further adds that, where a performance takes place in a country, art. 17(2) permits such country “to impose a tax on the profits diverted from the income of the sportsperson to the enterprise[5], which is the case of the Portuguese CIT rules; Portugal follows this approach. However, the Court deemed unimportant the fact that the activity of the football players Mr. E and Mr. G was being performed within the Portuguese territory and as a result any income resulting from such activities, although derived by a third entity, would be subject to CIT in Portugal under the CIT Code.


Differently, according to the Court:

1  relevance should be given to the existence of different contracts on the sale of the image rights (between the football players Mr. E and Mr. G and D Co. and F Co) and on the later assignment of such image rights (between these entities and the Club); and

2  no link should be identified between such image rights and the employment contract between the Club and the players.

Furthermore, a decision was reached without even discussing why such an assignment of image rights agreement should only be valid for the period in which the employment contract between the Club and the players was in force.

Therefore, it seems to follow from the Decision that the mere interposition of a company that owns the (previously transferred) image rights suffices to set aside source taxation of such rights in Portugal. The Court seems to uphold such view even though:

1  the sportsperson performs his/her activity in Portugal;

2  there is a link between the respective employment contract and the image rights;

3  the applicable DTT allows Portugal to tax such income under art. 17(2); and

4  the Portuguese domestic rules actually allow the taxation at the hands of a foreign third entity.

Eventually this would not be the outcome of the Court’s decision if (and when) the Portuguese tax authorities would decide to change their approach towards this matter, in such way that their view would ultimately be based on a facts and circumstances analysis allowing them to identify whether the payments are effectively connected with activities performed in the Portuguese territory.


[1] Senior Associate (Tax), Vieira de Almeida & Associados, Attorneys, Lisbon, Portugal.

[2] Senior Associate (Tax), Vieira de Almeida & Associados, Attorneys, Lisbon, Portugal.


[3] Arbitration process number 108/2015-T.

[4] Section 9 of the Commentary to Article 17.

[5] Section 11 of the Commentary to Article 17.