The tax assessments of the Italian Tax Revenue against famous sportsmen

di Vito D’Ambra

The Italian Revenue has attacked many times the famous sportsmen and many tax assessments have been made against them.
The guidelines of the assessments were the following:

1. Residence:
Many famous sportsmen formally resident abroad were considered by the Italian Tax Revenue resident in Italy.
As far as income tax, let me point out that if the sportsman is considered resident in Italy, he is owed to pay income tax with regard to the income generated in Italy and also for the income generated abroad.
In fact, it is applicable for the residents in Italy the world wide principle (taxation of all the income, generated in Italy or abroad).
Of course, there are rules against the double tax imposition in domestic law and in the Double Imposition Treaty entered into Italy and other States.
If the sportsman will be considered not resident in Italy, he will pay the income tax only with regard to the income generated in Italy.
The residence rules are contained in art. 2 of the Income Tax Law provided by the presidential decree n. 917/1986: is resident in Italy the person that spends in Italy more than 183 days or if he has in Italy his domicile or the residence according the provisions of the Italian civil code. Let me point out that if the sportsman will have the residence in a State that is not in the “White list” that will be provided by the Ministry of Finance Decrees (list that will include the States that allow the exchange of information), he must prove in case of assessment that this residence is real, providing to the Italian Tax Revenue (“Agenzia delle Entrate”) all the documents that prove that the residence abroad is real.

In relation to this argument, we can observe that Article 4 of the OCSE Model lists the criteria of residence in fact, Article 4 states that: " For the purposes of this Convention, the term “resident of a Contracting State” means any person who, under the laws of that State, is liable to tax therein by reason of his domicile, residence, place of management or any other criterion of a similar nature, and also includes that State and any political subdivision or local authority thereof. This term, however, does not include any person who is liable to tax in that State in respect only of income from sources in that State or capital situated therein.

2. Where by reason of the provisions of paragraph 1 an individual is a resident of
both Contracting States, then his status shall be determined as follows:
a) he shall be deemed to be a resident only of the State in which he has a
permanent home available to him; if he has a permanent home available to him
in both States, he shall be deemed to be a resident only of the State with which
his personal and economic relations are closer (centre of vital interests);
b) if the State in which he has his centre of vital interests cannot be determined, or
if he has not a permanent home available to him in either State, he shall be
deemed to be a resident only of the State in which he has an habitual abode;
c) if he has an habitual abode in both States or in neither of them, he shall be
deemed to be a resident only of the State of which he is a national;
d) if he is a national of both States or of neither of them, the competent authorities
of the Contracting States shall settle the question by mutual agreement.
3. Where by reason of the provisions of paragraph 1 a person other than an
individual is a resident of both Contracting States, then it shall be deemed to be
a resident only of the State in which its place of effective management is situated.”
2. Rights of Image: from the Interposition provisions to the Anti-Abuse rules:
The Italian Tax Revenue made many assessments, against many sportsmen and sport companies, regarding the managing of the rights of image considered as an integration of the sportsmen income. These assessments were supported at the beginning by the interposition rules (Mere Sham) provided by art 37 of Presidential Decree n. 600/1973: if the real beneficial owner of an income is not the apparent formal owner, the Italian Tax Revenue has the power to consider the real beneficial owner as the owner of the income. Of course, the Tax Revenue has the duty to write in the reasons of the assessment which are the precise, concrete and relevant elements upon the interposition is based and to prove the interposition before the Tax Court.
This proof is not easy and therefore many assessments made on this basis were annulled by the Italian Tax Courts.
Now, after some recent decisions of the Italian Supreme Court (amongst various: see judgments noo. 30055/08, 30056/08, 30057/08, 30058/08), the tax assessments may be supported also by the abuse of law rules.
Let me point out that in Italy, there are only specific rules regarding tax avoidance.
Although this is the traditional position based on the interpretation of the our actual tax legislative provisions, let me point out that recently the Italian Supreme Court changed interpretation and created a general anti-abuse clause, although it is not expressly provided by any tax legislative provision. The Supreme Court supports this abuse clause as expression of a general principle of our giuridical system based on the general principle of “taxation according to the concrete ability to pay taxes” contained in the art. 53 of the Italian Constitution.
The main elusive operations are however provided as specific cases by the art. 37-bis of the Presidential Decree n. 600/73. Let me point out that I do not agree with some scholars that think that a general anti-avoidance clause rule is provided by the first two paragraphs of the mentioned art. 37-bis of the same legislative decree n. 600/73 because the same first two paragrafs, in virtue of the specific provision of the third paragraph of the same article, are applicable only in the specific cases herein provided. Therefore, although I (as many other scholars) go on thinking that, in our giuridical system, a transaction can be considered as elusive only when it is expressly provided and forbidden by the legislator, nowadays, as I wrote before, the Supreme Court created a great confusion and gave an arbitrary power in the hands of the Tax Revenue and of the Courts.
In virtue of the confusion created by the Supreme Court, it is currently at the legislator’s study a reform of the legislation, but there are a lot of discussions regarding the content of the future reform.
The anti-abuse clauses can be applied when, through several operations with no valid economic reasons, we can obtain a tax reduction. The tax saving is not considered an abuse operation if the taxpayer demonstrates the economic purposes of the behaviours.
In our jurisdiction there are many specific anti-abuse clauses in force. We have special provisions regarding transfer pricing, dividend washing, dividend stripping, CFC, payments made to entities that are established in tax havens, et cetera.
The lawyers and the tax consultants, if certain conditions are met, can be sentenced with administrative penalties and for the most serious violations also with criminal penalties including the prison sentence.
In case that a criminal punishment is sentenced, the administrative monetary penalty is not applicable.
Administrative penalties are generally applied only to the taxpayers and the tax crimes only to his legal representatives. However, the taxpayers and his legal representatives in order to avoid or reduce their liability, could accuse the tax consultant if their behaviours has been caused by his opinion.
In Italy according to the art. 41 of the Constitution the freedom of business enterprise plays a central role. Moreover, following the entry into force of the European laws, provisions to protect the free enterprise has risen sharply. Despite all, in our country, free enterprise is very limited due to an excessive tax burden. The production of wealth, innovation and the creating jobs are restricted by a heavy bureaucracy (source Studi Confindustria, Italian Association of Enterprises, research published on the 10 of April 2010).
Unfortunately in our jurisdiction the freedom of business enterprise is highly deficient. Before the mentioned position of the Supreme Court there was a balance between the attack against tax evasion and freedom of business decision, therefore it is necessary an urgent legislative reform regarding the anti abuse matters.

Tax inspections and assessments are governed by the Presidential Decree 11. 600/73.
There are various grounds that may allow a tax inspection, amongst them:
The omission of the tax return or of the balance sheet;
if the statement of income is inconsistent with the parameters set by the law;
random audits on taxpayers et cetera.
For example, most companies must comply with the standards of tax adequacy: the tax return is appropriate if it indicates an income equal to that is estimated by the Tax Revenue. In the case of non-matching, the Tax Revenue will proceed to the assessment. However against these assessments the taxpayer may file a petition before the Tax Courts (Commissione tributaria provinciale, and for the appeal before the Commissione tributaria regionale), and later before the Supreme Court.
If the balance sheet or the accounting books are false or not fair, the powers of the Tax Revenue are of course more significant.
The spirit of tax inspections should be a mutual Cooperation between taxpayers and tax authorities. Moreover, tax payers may file petitions before the Tax Court only after the notice of the assessment also for the violations committed during the tax inspections until it has been issued the so-called notice of assessment. However during the tax inspections, the taxpayer may be assisted by a lawyer and/or by a tax consultant.

As far as the OECD Model. Let us point out that the art. 17 regarding the taxation of artists and sportsmen, states that: ”Notwithstanding the provisions of Articles 7 and 15, income derived by a resident of a Contracting State as an entertainer, such as a theatre, motion picture, radio or television artiste, or a musician, or as a sportsman, from his personal activities as such exercised in the other Contracting State, may be taxed in that other State.

Where income in respect of personal activities exercised by an entertainer or a sportsman in his capacity as such accrues not to the entertainer or sportsman himself but to another person, that income may, notwithstanding the provisions of Articles 7 and 15, be taxed in the Contracting State in which the activities of the entertainer or sportsman are exercised.”

 1. Tax Law/Sports/Labour Law Commissions Joint Session UIA MIAMI CONGRESS 31/10/2011-4 novembre 2011