Portugal: Taxation of Image and Economic Rights of Football Players

Essers et all (ed.), Tax Treaty Case Law around the Globe 2018

Posted: 14 Aug 2020

See all articles by João Félix Pinto Nogueira

João Félix Pinto Nogueira

International Bureau of Fiscal Documentation; Law School - Catholic University of Portugal (UCP); University of Cape Town (UCT)

Date Written: 2018


This case deals with a Portuguese decision on the qualification of amounts due from image and economic rights of football players.

The football industry involves billons of euro each year. Thus it is understandable that tax authorities have been paying increasing attention to the incomes of players, clubs and related entities. Footballers in many countries are now routinely audited, and many of these audits result in criminal proceedings.

As has been happening in other fields, there has been a growing trend in football towards the fragmentation of contracts. When a transfer is underway, players (or their representatives) are increasingly negotiating not only their remuneration for performance (sports employment contract), but also a wide variety of rights related, in some way, to their employment contract. Examples, besides the economic and image rights (covered by this decision), include bonuses, remuneration of representatives, fringe benefits, compensation for terminating the contract without valid cause, etc.

All of these incomes have a causal connection to the employment contract. It would be difficult to find a valid commercial reason for a football club to acquire rights regarding players performing for another club (although it would not be illegal or unreasonable).

However, mere causality is not enough to trigger source taxation, i.e., taxation in the state where the performance is exercised. The OECD Model commentaries' wording requires that the income be derived from a player's personal activities as such, exercised in that state. In other words, it requires a strict and strong connection between activity (performance) and income. Thus, the question in all these contracts is the degree to which an element of income is connected to the personal performance of the player.

The author believes that there are also valid reasons to enquire if the current rules still lead to a fair and balanced allocation of taxing rights.

Firstly, the author notes that the wording of the current criterion - "personal activities as such exercised in the other contracting state" - is not precise enough to provide legal certainty in this area. Thus, either the OECD Model or the Commentaries should be revised in order to provide further guidance.

Secondly, the author wonders whether the current criterion is the best one for allocating taxing rights. With respect to performers, it will always be a difficult task to distinguish between income "closely connected" to performance and other incomes. Perhaps it would be wise to introduce a "force of attraction" rule by which income "causally" connected (in the sense of income that accrued to the sportsperson or entertainer) due to the celebration of the sports employment contract should follow the rules applicable to employment income (especially when it is paid by the employer).

Thirdly, article 17 should be reassessed by noting the strengthening of bilateral treaties with anti-abuse provisions, namely the "principal purpose test". In fact, if one takes the latter into account, article 17(2) loses part of its meaning.

In the author's view, the clarification or replacement of the criteria used for the allocation of taxing rights in this field is a matter of urgency. The uncertainty in terms of legal interpretation leads to arbitrage, to unhelpful confrontations between taxpayers and tax authorities (with the frequent opening of criminal law procedures) to the detriment of the trust relationship that should always prevail in the relationship between taxpayers and tax authorities.

Keywords: Taxation, Tax law, European taxation

JEL Classification: K33, K34, F13, E62, D78, E62, F02, F23, F42, H20, H22, H23, H25, H26, H87, O19, O23, O24

Suggested Citation

Pinto Nogueira, João Félix, Portugal: Taxation of Image and Economic Rights of Football Players (2018). Essers et all (ed.), Tax Treaty Case Law around the Globe 2018, Available at SSRN: https://ssrn.com/abstract=3644299

João Félix Pinto Nogueira (Contact Author)

International Bureau of Fiscal Documentation ( email )

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Amsterdam, 1019 DW
+31205540100 (Phone)

Law School - Catholic University of Portugal (UCP) ( email )

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4760-164 (Fax)

HOME PAGE: http://https://fd.porto.ucp.pt/pt-pt/pessoa/joao-nogueira

University of Cape Town (UCT) ( email )

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Rondebosch, Western Cape 7701
South Africa

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