By Mario Tenore, Studio Pirola Pennuto Zei & Associati, Of Counsel
The Italian tax regimes display a quite high “force of attraction” vis-à-vìs sportspersons, including those who are mobile in the carrying out of their sporting activity (golfers, tennis players) and those who are less mobile (football players, basketball players).
With the entry into force of the so-called lump-sum regime (also known as “regime dei neo-residenti”), introduced in 2017, Italy became part of those jurisdictions offering a favorable tax regime for ‘High Net Worth Individuals’, including sportspeople. The “tax appeal” of the Italian jurisdiction has been strengthened with the subsequent ‘introduction of an ad hoc regime for “impatriate” professional sportspeople.
Both regimes, whose benefits cannot be accumulated, operate in a special manner and apply on an optional basis: the lump-sum regime benefits foreign source income and assets held abroad, while the impatriate regime benefits income sourced on the Italian territory.
Both the lump-sum regime and the impatriate regime are being widely applied by sportspeople moving their tax residence to Italy.
Recent relevant legislative developments are nonetheless not sufficient. There are indeed still a number of uncertainties surrounding the application of both regimes which could affect or at least reduce their potential attractiveness.
The lump-sum regime intends to encourage the transfer of tax residence to Italy by ‘High Net Worth Individuals’. As acknowledged by the Italian Revenue Agency, the regime is inspired by similar tax regimes available in other jurisdictions, for example, Portugal and the United Kingdom. The regime is available to taxpayers who transfer their residence to Italy from abroad and who have been resident abroad for at least nine tax periods in the ten-year period preceding the acquisition of Italian residence. The lump-sum regime is, therefore, appealing for mobile sportspersons that carry out most of their activities outside the Italian territory.
Amongst other tax benefits, income from foreign sources, such as income related to foreign performances, is subject on a yearly basis to a fixed substitute tax of €100.000 that applies in lieu of IRPEF and related surcharges, for a maximum duration of fifteen tax periods (non-renewable). The measure has a high potential of attraction although its application is still controversial as regards the tax treatment of income relating to the exploitation of image rights.
There are no official positions taken by the Italian Revenue Agency and the doubt concerns the criteria to be used in order to assess the territoriality of such income, in particular, in those cases in which the exploitation of the image rights is not connected with the carrying out of the sporting performance.
It is true that taxpayers may activate an advance ruling request to seek, amongst other things, the confirmation from the Italian Revenue Agency as to whether a given item of income qualifies as foreign source income. However, the ruling is often seen as an element of uncertainty and it may, in some cases, require a processing time of up to 180 days. In the light of this and, in order to further strengthen the attractiveness of the regime, clarifications by the Italian Revenue Agency would certainly be welcomed in this area.
Under the impatriate regime, income from employment received by professional sportspersons, such as football players, who transfer their tax residence to Italy, is included in the taxpayer’s overall income for fifty per cent (50%) of its amount, provided that the beneficiary of the regime, for example, a professional football player, was resident for tax purposes abroad during the two tax periods preceding the transfer of tax residence to Italy and remains resident in Italy for at least two tax periods and works in Italy for at least 183 days in each tax period.
The impatriate regime, therefore, operates in a special manner with respect to the lump-sum regime in that it benefits income from activities carried out on the Italian territory, rather than foreign source income.
The benefits of the impatriate regime are applicable for five years and cannot be renewed. The benefits of the impatriate regime are withdrawn in case the taxpayer does not maintain his/her residence in Italy for at least two tax periods (which is the case if the player is registered with the club for one sporting season). The employer (the club), acting as a withholding agent, must withhold the taxes on the reduced taxable base. The benefit can also be taken at the end-of-year adjustment or in the tax return. Finally, the application of the regime is subject to the payment of a contribution equal to 0,5% of the reduced taxable basis. The failure to pay the contribution, in whole or in part, could trigger the non-application of the regime.
Even such regime is surrounded by elements of uncertainty, such as the tax consequences arising in case of cessation of the tax regime, for example, in case the player leaves Italy after one sporting season; the inclusion of tax indemnity clauses in the employment contract; and the application of the regime in case sportspersons are transferred to Italian clubs on a loan basis.
Given the above, the author of this Post would welcome the creation within the Italian Revenue Agency of an ad hoc task force, with a deep understanding of and experience with the sports business and its peculiarities. Such task force should then deal with the taxation of artists and sportspersons following similar experiences of other jurisdictions, such as the United Kingdom.
This would certainly further boost the attractiveness of the Italian tax system and would possibly achieve a higher degree of certainty on tax matters!
Dr Mario Tenore may be contacted by e-mail at ‘firstname.lastname@example.org’