Allocation of income
Another crucial and common aspect of international taxation of sponsoring/endorsement incomes is the criteria of allocation of income among several States of the performance.
States do not often have provisions clearly addressing the portion of non-resident international sportspersons’ income which is deemed as sourced within their respective territories. The main criteria are provided by the official tax authority guidelines or by domestic jurisprudence.
For instance in a French tax litigation involving a French tennis champion resident in Switzerland, the tax court held that the sponsoring/endorsement income taxable in France should be determined by reference to the estimated time spent on French soil by the tennis player, with particular regard to the “exposure to the public and media” in fulfilling the relevant sponsoring/endorsement agreements.
As for Italy, a lack of clear guidelines means that scholars, practitioners and stars’ agents still debate on the most appropriate criteria to correctly apportion sponging/endorsement incomes internationally. That debate may include examples such as the place from which the image rights were transferred, or the place where the shooting takes place etc.
In this context, the Italian ruling contributes to the debate by requiring a factual analysis focused on where the performances effectively take place, rather than where the image rights are effectively exploited. Furthermore, the ruling reads that the applicant’s method of dividing the remuneration (60% for the artistic performance and 40% for the exploitation of image rights) suggests that the transfer of image rights is ancillary and instrumental to artistic performance, hence the overall income is to be considered as sourced in Italy.
These new guidelines arguably provide new important elements to the general analysis of the typical sponsoring/endorsement agreement having international reach and notch up the main leading cases on this topic such as golf stars Goosen and Garcia vs US IRS, tennis champions Agassi vs UK HMRC and Gasquet vs French tax administration (etc.).
Although the ruling does not address the case of sponsoring/endorsement incomes derived by employees (such as soccer players) alongside their professional activity, it will certainly play an important role in negotiating sponsoring/endorsement agreements and reviewing existing ones.
What is more, celebrities and sport stars considering a relocation to Italy under the “new residents tax regime” (providing for a full tax exemption on incomes sourced outside of Italy) of the inbound workers regime (providing for a reduction from 50% to 30% of the taxable base of incomes deriving from working activities mainly carried out in Italy) may indeed count on another important piece of interpretation from the tax authorities to outline the tax risks and opportunities for their international performances.