Sports sponsorship and taxes: how is athletes' remuneration taxed?

This article will answer the following questions:

• What is sports marketing and what does it include?
• How is sports sponsorship taxed?
• Which country taxes an athlete's remuneration received from a sponsor in exchange for promoting the company's image abroad?

Businesses, deciding to build a brand image, are increasingly more willing to get involved in sports events. After all, supporting clubs, teams and individual players – regardless of the sponsor's industry – is a great opportunity to advertise your services or goods, both at the local and international level. Given that sports marketing is constantly developing – the best evidence of which is the omnipresence of logos that can be found on both players' jerseys and their equipment – when preparing to sign a sponsorship agreement, it is worth taking a closer look at the issue of taxation of the athlete's income from brand promotion.

Sponsorship agreement

Sponsorship is the financing of something (or someone) in exchange for advertising. It is therefore a form of marketing thanks to which the sponsor creates a positive image of their brand by accompanying various types of events.

The sponsorship agreement is an innominate agreement, which means that the rules for its preparation have not been directly regulated by the Polish law. Therefore, the parties to the agreement – the sponsor and the athlete or their representative – can shape its provisions in any way they want. The only condition for the validity of such a document is that the content and purpose of the contractual relationship do not contradict the nature of the relationship between the parties, the act or the principles of social coexistence.

There are two forms of sponsorship agreements, namely proper sponsorship (characterised by mutual benefits) and improper sponsorship (similar in its form to a donation and consisting of a unilateral benefit).

The source of the athlete's income from the sponsorship agreement

In the case of proper sponsorship in sports – i.e. an activity where the sponsor transfers funds (or provides services) in exchange for which the athlete promotes their brand – according to Polish tax regulations, the athlete's income will be classified as income from activities performed personally.

Settlement of income from sports sponsorship agreements under double taxation treaties

In accordance with Article 17 of the Model Convention of the Organisation for Economic Co-operation and Development (OECD), an athlete's income derived from activities performed personally in that role may be subject to taxation in the country in which the activities are performed.

The phrase "may be subject to taxation" means that the athlete's income is subject to taxation both in the source country and in the country of residence (with the application of an appropriate method of avoiding double taxation, i.e. the exclusion with progression method or the proportional deduction method).

We have already looked at the mechanism of exclusion with progression and proportional deduction on our blog when discussing the tax on prizes won in foreign tournaments and competitions.

In addition, the Commentary to the Model Convention of the Organisation for Economic Co-operation and Development indicates that the provision of Article 17 paragraph 1 may also apply to fees for advertising and promotion of an athlete – provided, however, that this income is related to sports activities performed in a given country. The place of taxation of such income is the place of performing the activity, not the country of the source of financing.

Example: An athlete who is a Polish tax resident has entered into a sponsorship agreement with a German company and during tournaments wears sportswear with the sponsor's logo, in return for which he or she receives remuneration from the sponsor. The athlete advertises this brand during competitions all over the world. This means that the athlete's fee will be taxed first in the countries where he or she performs sports activities and then – after applying the appropriate method of avoiding double taxation – in Poland.

As the Head of the Tax Chamber in Katowice notes in the case of an analogous situation, "the fact that the source of financing comes from Germany does not mean that this income was obtained in Germany. The income is obtained in the country where the activity is carried out" (individual interpretation of the Head of the National Revenue Administration Information Centre of 21 January 2009, reference number IBPBII/1/415-35/08/BJ).

Since the tax settlements of athletes participating in numerous international tournaments and events may raise many questions and doubts, we encourage all interested parties to contact our specialists, who will be happy to support you in this regard.