Legal opinion 956-69/2024, requested by the Italian Equestrian Sports Federation and issued by the Central Directorate of the Italian Revenue Agency. The question expressly covers VAT on prize money as well.
The Agency distinguishes between four different situations and reaches one rather important conclusion: where a prize is awarded on the basis of the outcome of a competition and there is no reciprocal exchange of services between the athlete and the party making the payment, the reciprocal relationship required for VAT purposes simply is not there. No VAT, then.
If, however, the prize is paid as part of a self-employed sports relationship, it becomes part of the remuneration for that service and is therefore subject to VAT.
As first sniffed out by La Gazzetta dello Sport, after some very respectable hound work, the Italian tax authorities have begun looking into a number of professional tennis players resident in Italy, focusing among other things on the VAT treatment of prize money earned at tournaments played in the country.
There is one slight problem, though.
What I have just described is not the view of the accountant interviewed by the Gazzetta. It is what the Italian Revenue Agency itself says in writing.
Then there is the Court of Justice of the European Union.
In Baštová (C-432/15), the Court held that where money is paid only if a particular placing is achieved, the prize is not consideration for merely taking part in the competition. If, by contrast, a payment is guaranteed simply for participating, regardless of the result, then there may indeed be a supply of services for consideration.
In 2023, the same Court clarified the other side of the principle: if there is a genuine contract for services and the remuneration is agreed as a percentage of whatever prize money may eventually be won, the uncertainty surrounding the prize does not prevent VAT from applying. The underlying contractual relationship is still there.
Italian law points in the same direction. Article 3 of the Italian VAT Decree defines taxable services as those supplied “for consideration” on the basis of obligations to do, not to do, or to permit something.
And that is exactly what the whole question turns on.
The ATP rulebook, for its part, clearly distinguishes prize money from other forms of payment and even provides for situations in which a player may receive first-round prize money after withdrawing on site for medical reasons.
Which means that the wonderfully simple equation “prize money = payment for having played the match” does not really survive contact with the rules.
Because the Revenue Agency itself says that the decisive point is not what a payment happens to be called, but whether there is a counter-performance in return.
So the question becomes: when Sinner enters the Italian Open, is he providing a service to the tournament and being paid for that service? Or is he entering a competition and receiving a prize whose amount depends on the result?
I’m confused. Let’s try some toy examples.
Case 1. A tournament tells a player: “Come to Rome and I’ll give you €100,000, whatever happens.”
That is payment for turning up. There is an identifiable service: you come, I pay you. An appearance fee. VAT is due.
Case 2. The tournament says: “Win and you get a million. Lose in the semi-finals and you get €300,000. Go out earlier and you get less.”
Now the payment depends on the outcome of an uncertain event. Under the logic of Baštová, and under the Revenue Agency’s own opinion, if there is no underlying employment relationship or other contractual service, that is a prize. You are not invoicing the tournament for the service of “winning the semi-final”.
No VAT.
Case 3. The player does have a genuine contract for services, and the parties agree that part of his remuneration will be calculated as a percentage of whatever prize money he wins.
Now the uncertainty of the amount is no longer enough to take the payment outside VAT. There is still an underlying remunerated service.
VAT is back.
And then actual tennis turns up and cheerfully wrecks the toy model.
Because, in certain circumstances and subject to specific conditions, the ATP rules allow a player who is on site and declared medically unfit to receive first-round prize money without playing the first match at all.
So even “they paid you the prize money because you played” is not always true.
And then, of course, there are Wild Cards, which effectively hand you at least the first-round prize money before you have done very much at all…
If you have understood very little by this point, I can offer some reassurance: neither have I.
After all, I’m Hugh Grant, I’m pretending to be here for Horse & Hound, and all I really want is to see Julia Roberts. I know absolutely nothing about her film.
One thing, however, is beginning to make rather more sense to me: why, for a professional tennis player, tax residence is not merely a biographical footnote.
Every so often in Italy, the debate about Jannik Sinner’s residence in Monaco comes back round, as though it were some sort of “moral issue” for the world No. 1. Which is a slightly curious argument in a sport where Monte Carlo has functioned for decades as something close to a permanent Olympic Village. Sinner is not even the only Italian. Musetti, Berrettini and a number of other professionals live there or have established their residence there.
In any case, given the extraordinary clarity — ouch! (Elena quote) — of the Italian tax system, it seems quite plausible that the Principality might offer certain advantages, if only in terms of predictability.
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