The increasing popularity of international competitions continues to entice sportspersons to aim beyond their national borders, allowing them to exceed their potential and achieve the elusive gold on a global stage. However, there is a tax aspect to sportsperson mobility, and jurisdictions continue to grapple for their share of the profits, while simultaneously vying to attract high-profile athletes and their team to the respective nation through various tax and other incentives.
The sports industry is fundamentally an entertainment business, encompassing multiple facets to income generation for sportspersons. The sportsperson’s income and competition prizes are only the tip of the iceberg, and as they continue to make a name for themselves, traits such as their name, alias, autograph, physical features, and other distinctive personal traits all become inroads for greater financial yield. Collectively categorized as image rights, these characteristics are often capitalized for revenue generation through sponsorships, endorsements, merchandising, and product lines.
Malta’s attractive tax framework has made it a preferred jurisdiction for sportspersons looking to optimize their income streams. Pivoting off the mobile lifestyle required by most professional sportspersons, the Malta tax system offers a range of opportunities for athletes, coaches, and managers alike to efficiently qualify their income and effectively leverage their image rights.
Taxation of Image Rights: OECD Convention
The income derived from the exploitation of image rights generally carries with it cross-border considerations, triggering international tax notions such as the enforcement of double tax treaties and other inter-jurisdictional frameworks. The OECD Model Tax Convention on Income and on Capital (the ‘OECD Model’) streamlines the various interpretations given by each distinct jurisdiction, aiming to harmonize a uniform answer to the problem of characterizing the different types of income generated by sportspersons. Although the OECD Model effectively identifies and assigns various allocation rules to different income categories, it does not offer a definitive approach for handling income derived from the exploitation of a sportsperson's image rights.
Income generated from image rights could fall under the following categories contemplated by the OECD Model:
- sportspersons’ income;
- independent services income;
- dependent services income;
- royalty income; or
- the residual category of other income.
Since the nature of the income determines which provision in double tax treaties applies, the inconsistent categorization of income from image rights creates significant uncertainty and conflicting interpretations over which jurisdiction—the source or the residence jurisdiction—has the right to tax the profits. It is therefore evident that appropriate structuring in receiving the income derived from image rights is crucial to avoid such inconsistencies and ascertain whether the income from the image rights will be taxed at source, or by the residence jurisdiction.
Image Rights as Intellectual Property
In Maltese intellectual property law, a sportsperson's image rights can be registered and protected as intellectual property, if they confer a distinctive character, but also to assign such rights to a separate entity altogether, such as a Maltese Company or a Trust.
Taxation of Image Rights in Malta
The Maltese corporate tax system provides numerous tax incentives for income from sports image rights as royalty income derived from intellectual property. Tax efficiency is achieved through a combination of tax rebates, deductions, and exemptions resulting in competitive effective tax rate on income from image rights. Whether intellectual property is held personally or through a separate entity, the Maltese tax framework provides significant opportunities for exploiting a sportsperson’s image rights through royalty income, making it an ideal destination both for athletes and their team alike.
In Malta, income derived from the licensing of intellectual property rights falls under the category of royalties. Therefore, since the income generated from exploitation of sports image rights would be categorized as royalties (if not closely connected with a specific performance), under the OECD Model, the income would be subject to tax in the residence country, and not on source basis.
Implications for Sportspersons
As sportspersons’ avenues for income generation continue to develop, it is important that they prudently assess their income streams and structure them accordingly to effectively and efficiently capitalize on their hard-earned successes.
Our Sports Tax Advisory Services
Chetcuti Cauchi’s Sports Law team offers various services aimed at providing a multi-faceted approach when offering sports law advice to businesses which are interested in setting up an establishment in this sector in Malta. Our advisory services are also aimed at:
- drafting, revising and negotiating contracts;
- providing taxation advice; and,
- reaching agreements and negotiations with sports agents, managers and agencies.
Our team also deals specifically with sports personalities, handling issues related to reputation management, protection of privacy, taking up residence, personal tax advice, image rights, sponsorship rights, broadcasting issues and associated contract work.
