Introduction

The optimisation of the tax burden of athletes is not unknown in the sports industry. Due to their very particular situation, there are various possibilities to consider and special challenges to face. An athlete often faces cross-border situations and is, therefore, subject to taxation in several countries.

Income from sport (prize money, starting fee, salary) is usually taxed at the place of the competition or the work place. In contrast, royalty income is usually taxed at the beneficiary’s domicile. Hence, a common way for athletes to reduce their tax burden is to use an interposed company in a jurisdiction with beneficial tax rates. The athlete transfers his intellectual property rights (mostly image rights and trademarks) to this company. The interposed company exploits the transferred IP rights by licencing the IP rights of the athlete to sponsors or the athlete’s employer. The employer then splits the athlete’s remuneration into direct salary payments to the athlete, including social security charges, and royalty payments free of social security charges payable to the interposed company. The athlete and the employer, therefore, will not pay social security charges on the royalties.

The company can capitalize some of the income and only reimburse a fixed compensation to the athlete in order to control the athlete’s personal income and tax situation.

The company and the athlete will be taxed on their profit and income in the applicable jurisdiction and the athlete can control the movement of money inflow from the interposed company. Logically, these interposed companies are set up in jurisdictions which offer favourable tax rates.

Such structures sometimes face resistance by tax authorities, if the athlete is only employed by one employer and the interposed company only licences image rights to this employer. The tax authorities might classify the total remuneration as salary and basis for social security charges. To foster the acceptance, it is recommended that:

1
the interposed company is not completely owned by the athlete;

2
the interposed company licenses image rights to more than one counterparty;

3
the interposed company exploits image rights of more than one athlete; and

4
the company has substance at the companies’ domicile6.

However, if the athlete is not directly employed by one employer (e.g. tennis player, golfer, etc.), tax authorities for the most accept the structure.