The Sports Law & Policy Centre | Taxing Times: Professional Athletes and Tax
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Taxing Times: Professional Athletes and Tax

By Seshank Shekar and Prabhjyot Chhabra


Professional athletes or sportsmen are perhaps among the most mobile and high income individuals in the world today. The income earned or generated by such individuals is diverse and is spread across various jurisdictions. Apart from direct earnings related to the live performance or competition, the income of athletes may also consist of earnings from indirect sources such as product or brand appearances, public appearances, prize money, grants and gifts and image rights. In most cases, the income derived by athletes from these ancillary activities dwarfs the amount earned by them from their activities as performers or competitors. As an athlete becomes increasingly famous or gains a wider public profile, his or her income may be derived from several different countries. This mobility associated with athletes is the prime reason for the complexity of tax regimes for athletes. Consequently, over the course of his/her career, an athlete would be subject to a myriad of taxation structures employed by different jurisdictions. This Article briefly discusses the tax regimes currently in place in the United Kingdom, United States and India and outlines the inherent issues pertaining to taxation of an athlete’s income.

International Framework

The tax liability of a professional athlete is influenced by several factors such as the status of his/her residency in a country, the source or type of income and the country he or she is competing in. Typically, an athlete who resides in that particular country (“Resident Athlete”) will be taxed differently from visiting international athletes (“Non – Resident Athletes”). While most countries have their own distinctive rules and criteria with regards to taxation of resident athletes, the taxation of a non-resident athlete is particularly complex and is based on the principles provided in the Organization for Economic Co-operation and Development’s (“OECD”) Model Tax Convention on Income and on Capital (“Model Tax Treaty”) adopted by the OECD Council in 1963.

Article 17 of the Model Tax Treaty lays down the “source rule” which states that income derived by a sportsman or athlete from his/her personal activities in a country other than his/her resident country will be taxed in that other country. As there is a likelihood of Double Taxation i.e. the same portion of an athlete’s income may be subject to tax in two or more countries, Article 23B of the Model Tax Treaty further provides that athletes can avail of credit on tax paid in the other country and can utilise it against payments in their home country in order to negate the possibility of this “double taxation”. Further, most countries sign bilateral Double Taxation Avoidance Agreements (DTAA’s) based on the Model Tax Treaty, in order to ensure that an Athlete is not subject to any double taxation.

United Kingdom

The United Kingdom (“UK”) is host to several premier international sporting events and leagues in the world, such as Wimbledon Lawn Tennis Championships (“Wimbledon”), the English Premier League (“EPL”), British Grand Prix and most recently the London 2012 Olympic Games (London Olympic Games) and is home to some of the world’s richest footballers, formula one drivers and other athletes.

In the UK, an athlete, whether a resident or a non-resident, would be subject to tax if he/ she performs in any kind of sport or performs an activity in his/her character as an athlete or in connection with any “commercial occasion”. These “commercial occasions” include all advertising, sponsorship, and endorsement activities. Any income derived from these activities falls within the ambit of the tax regime as long as the payments are in any way derived directly or indirectly from the athletic performances.

Further, the Income Tax (Entertainers & Sportsmen) Regulations 1987 (“Regulations”) provide that resident sportsmen or athletes are to be taxed on all of their worldwide income while international non-resident athletes are taxed only on income sourced directly from the UK. The Regulations also provide that in addition to tax paid on prize money and appearance fees in connection with a performance in the UK, non-resident athletes shall also be charged a percentage of global endorsement income as tax, with the amount proportional to the amount of time they spend in the UK per year. For example, if a professional tennis player competes in ten events in a year worldwide, one of which is Wimbledon, then he would be taxed in the UK on 10% of his global endorsement income.

This principle was reaffirmed In Agassi v. Robinson (Her Majesty’s Inspector of Taxes) [2005] EWCA Civ 1507 , wherein the House of Lords had to determine whether endorsement income received by Andre Agassi (an American tennis player) from US sportswear giants Nike and Head and paid to his US-based company were subject to tax in the U.K. The Court held that all such sponsorship and endorsements made to a non-resident athlete were taxable in the UK even if the payments were made by a non-resident company.

Thus, the decision in Agassi v. Robinson and the prevalent tax laws have acted as a deterrent for several high profile athletes such as Rafael Nadal and Usain Bolt from competing in the UK, as their total tax liability could actually be greater than any potential prize money and appearance fees they would win in an event held in the UK. However, in a move to attract top names to compete at the London Olympic Games 2012, and other upcoming international events in the UK including the 2013 UEFA Champions League Final, the 2014 Commonwealth Games and the 2017 World Athletic Championships, special legislation has been enacted so that non-resident athletes are exempted from tax in UK on any income in connection with their performance in the UK with regards to these specific events. For example,The London Olympic Games and Paralympic Games Tax Regulations(2010) state that “any income received by an athlete wholly and exclusively in return for that athlete performing in a sporting event at London 2012; or taking part in any promotion in relation to London 2012 in the UK during the relevant period; shall be exempt from income tax” These exemptions are applicable to all international athletes, whether individuals or part of a team and to any income arising from their participation in the London 2012 Games.

United States

The US is home to some of the world’s most valuable sports events, teams and sports leagues such as the National Basketball Association (“NBA”) and Major League Baseball (“MLB”) and therefore attracts some of the best professional athletes in the world.

In the US, resident athletes pay tax to the Federal Government under the Internal Revenue Code (“IRC”) on their “Gross Income” which includes compensation for services, bonuses, prizes or medals and awards, as well as all compensation received for personal appearances, endorsements and promotions.

A peculiar feature of the US tax regime is that athletes may also be subject to additional taxation under a state’s tax code which supplements the IRC. These tax codes have varied interpretations on issues such as residency, characterisation of income and determination of income. Therefore the tax liability of an athlete depends not only on the country he is from but may also on the state he resides or performs in within the US. This especially affects athletes who are part of the major professional leagues such as the National Basketball Association (“NBA”) and the National Football League (“NFL”) and play games across multiple states and jurisdictions over a league season. Several States impose a “jock tax” on the income of visiting professional athletes usually by using one of two methods; the ‘duty days’ method wherein the player’s total number of work days during the season are divided by the number of days spent playing in the state or the ‘games played’ method, wherein the total number of games played by the athlete over a season are divided by the number of games played in the state.

The existence of separate tax codes for each state also presents the prospect of state double taxation (wherein an athlete is taxed in his home state and also in a state where he/she performs). To circumvent this issue some states grant athletes a “credit” for tax paid in other states. On the other hand, several states such as Florida, Nevada, and Texas, amongst others exempt athletes from any tax liability. Many of the world’s richest athletes such as Tiger Woods and Le Bron James have taken advantage of these exemptions granted by Florida in particular and have set up residence in that state.

In the case of non-resident athletes, worldwide income derived from a source within the US is taxable under the IRC. The tax liability under the IRC for non-resident athletes participating in the US is determined by following a test similar to the one used in the UK, wherein the income of non-resident athletes is taxed proportionally based on the number of days they perform in the US as against the number of days they perform worldwide over a year.


India is rapidly emerging as a favourable destination for hosting world class international sporting events. These events, which include the Indian Premier League (“IPL”), the 2010 Commonwealth Games (“2010 CWG”), World Series Hockey (“WSH”) and the FIA Formula One Indian Grand Prix are responsible for attracting a large number of professional athletes who are all potentially subject to taxation. In India, the tax treatment of resident athletes is relatively straightforward. The income of resident athletes is generally taxed under the head “Profits and Gains from business or Profession” under the Income Tax Act 1961 (“Income Tax Act”) and is subject to deduction at source in terms of section 194J of the Act. Further Section 88D makes an exception for income earned by a resident athlete or entertainer outside India and provides for the deduction of up to 75 % of such income from the total taxable income of the athlete.

Even though India is not a member of OECD, the tax regime for non-resident athletes in India is based on the source rule which is followed by most OECD member countries such as the UK and the US. Circular 722 of 2000 (“Circular”) issued by the Central Board of Direct Taxes (“CBDT”) clarifies that for non-resident athletes, “all income accruing or arising or deemed to be accruing or arising, received or deemed to be received in connection with participation in sports events held in India” will be charged to tax under section 5 of the Income Tax Act on a pro rata basis and is subject to deduction at source in terms of Section 195 of the Income Tax Act. The Income Tax Act, under section 115BBA, further provides that “any income accrued by way of participation in India in any game or sport, from advertisement or contribution to any newspapers, magazines or journal of any articles relating to sport or game in India” shall be taxed at the rate of 10 %. However, the Finance Act of 2012 (“Finance Act”) amended Section 115 BBA to provide that any income arising to a non-citizen, non-resident athlete from a performance in India shall be taxable at the rate of 20% from the financial year 2013. Also, in what may be unsettling news to cricketers especially, the Finance Act seeks to impose a service tax on domestic and foreign players participating in the IPL or any other sporting event which is not the recognised format of the game or any event which is organised by a sports body that is not recognised by the Government of India.


Each country takes a diverse and often convoluted approach to taxation of professional athletes. While the law varies significantly when it comes to resident athletes in each of these countries, the approach towards taxation of non–resident athletes is more or less in consonance with the Model Tax Treaty. In addition to India, US and the UK, most high-profile sporting destinations across the world such as Australia, Spain, and Germany establish liability of non-resident athletes in line with the source rule as provided in the OECD Model Tax Treaty. Nevertheless, there is still substantial variance in other factors such as rates of taxation and the definition of taxable income in these jurisdictions which has resulted in considerable compliance burdens and potential double taxation of athletes. Another potential hurdle which has cropped up recently is the practise of Athletes using offshore corporate structures to manage their income from activities other than sports. Whether these intrinsic problems can be solved by a unified tax regime applying to specific sportspersons is up for debate; however, what cannot be disputed is the fact that there is a need for greater clarity in the existing laws themselves.