This post is also available in: Español
After a period of analysis, evaluation and reflection, the Spanish tax authorities have decided to require motorcycle racers not physically residing in Spain to pay non-resident income tax (“NRIT”) for participating in races held in Spain.
We had already addressed this subject in our blog in February 2018, and so far, we are unaware that the Spanish authorities have levied NRIT on those racers. However, as in other countries like France, from now on the Spanish tax authorities will levy NRIT on racers. Proof of this is the express inclusion of the escalated control of income earned by non-resident professional athletes (and artists) in Spain in the Spanish Tax Agency’s 2020 Annual Tax and Customs Control Plan, affecting not just the income directly received for the professional performance, but any other closely tied to it as well.
Professional athletes’ income, even when received by a different person or entity, is considered obtained on Spanish soil and, therefore, subject to NRIT when this derives, directly or indirectly, from (i) the athlete’s personal performance on Spanish soil, or (ii) any other activity relating to that performance. The taxation in those cases is 19% for EU residents and 24% for non-EU residents.
Also, most double tax treaties with Spain allow the country in which the athlete’s performance takes place to tax any income generated or arising from that performance. Those treaties also establish the appropriate mechanisms to avoid double taxation of that income (in the state where the performance takes place and in the state where the athlete is resident).
The World Motorcycle Racing Championship, known as the MotoGP Championship (which includes Moto 2 and Moto 3 in addition to that category), has four races that take place on Spanish soil, out of a total of 20 in its calendar. In other words, 20% of the championship races. If we adhere to the provisions of the Spanish NRIT Act and the double tax treaty, the income generated by the racers in those races would be subject to taxation in Spain.
Within that context, the essential issue is the quantification of the taxable income in Spain, i.e., the NRIT taxable base, as the racers receive different types of income from different payers, and not all of it derives from their performance in Spain.
Types of racer income include (i) income paid by their teams (that compensate their racing activity and the assignment of image exploitation rights); (ii) income paid by the sponsors/suppliers of their technical gear (helmet, suit, gloves and boots); (iii) income from their personal sponsors (for exploitation of their image or brand); and (iv) income paid by third parties for the conferral of licenses on brands or the sale of merchandisingproducts.
In France, for example, the taxable base of the equivalent of Spain’s NRIT is calculated by multiplying the difference between the racer’s given income and expenses by 1/20 (only one MotoGP Championship race will be held in France in 2020 out of a total of 20). Of that income, the French tax authorities consider the following computable: (i) the compensation paid by the team (the fixed as well as the variable portion that the racers may receive based on their final ranking in the championship), (ii) compensation paid by technical sponsors/suppliers (likewise in the fixed and variable portions for the final results in the championship), and (iii) the compensation paid by those sponsors with a space for inserting their logotype on the racer gear (normally on the racing helmet or suit). The French tax authorities allow all expenses directly related to the racer activity, e.g., manager compensation, administration expenses, lawyers and travel.
It is customary for the agreement with the team and sponsors to include a bonus based on the racer’s classification in each race. In those cases, the bonus corresponding to the race held in France is taxed in its entirety.
In Spain, the tax authorities have recently been analyzing the various sources of racer income and the agreements giving rise to these, to establish the criteria and parameters to enforce and quantify NRIT for non-resident racers. Based on recent news and communications, the authorities seem to have already completed this task.
Contrary to the French model, the Spanish tax authorities appear to have opted for levying NRIT on the racer’s gross income, considering only income from some of the racers’ payers taxable income, and at a given percentage (not in its entirety).
The goal of the tax authorities is that, within a reasonable period of time, non-resident racers will voluntarily regularize their situations with respect to past years open to audit (last four years), after which it will start the appropriate audit and investigation actions. This may entail not just the settlement of the corresponding NRIT, but also the imposition of sanctions ranging between 50% and 100% of the tax payable.
Due to this new situation and given its relevance, non-resident racers must review and regularize their NRIT with respect to past years, while simultaneously making provisions for this tax in the future.
This post is also available in: Español