The acquisition of Cristiano Ronaldo by Juventus is perpetuating discourse, not only concerning sporting performance and statistics, but also over the fiscal implications of the transfer, in particular regarding the optional replacement tax regime dedicated to new residents in Italy.

We are by now used to tax and financial scandals being linked to the names of great champions of this sport, from Maradona onwards, and we have already seen the Portuguese champion involved in a scandal with the Spanish tax authorities. Our interest here is certainly not to ride the wave of the indignant for the gains of the rich, but instead to utilize the transfer of the champion to Juventus as an opportunity to raise awareness regarding a concessionary standard introduced by the 2017 Law of Stability.

We do not yet have official data on the level of approval of the rule, however the political instability of our country at the beginning of the year will certainly not have helped to make it particularly attractive. Thanks to his transfer to Turin, the planet’s most social man could take advantage of an Italian tax law, that would permit him to pay the Italian tax authorities a lump-sum of 100,000 euros for each tax period, and for all the income he receives from foreign sources, regardless of the country in which these incomes are produced.

There are two main requirements to take advantage of the rule: the movement of residence to Italy under the provisions of the tax code, and that one has been a tax resident in a state other than Italy for at least 9 of the last 10 tax periods, regardless of citizenship or country of origin.

In Cristiano Ronaldo’s case, the workings of this rule mean that with regards to membership of the scheme, only the fees received for sports services provided in Italy should be subjected to ordinary taxation, by applying the highest rate of income tax (43%), while all the income from the player’s foreign activities, such as compensation for image rights, property income and financial assets, would only serve under the flat-tax rate of 100,000 euros per year.

Another interesting element regarding the application of the rule, is the possibility (non-obligation) to present a specific request for prior ruling to the Revenue Agency, in order to verify the requirements and conditions adhering in this case, to the optional regime. The Agency then has 120 days to convey an opinion. This certainly helps to validate the doubtful cases in advance, thus providing greater certainty of choice to those wishing to join.

It should be stressed however, that the burden of proof of tax residence always lies with the person who opts for the optional regime. To this end, a specific section of the template for the option identifies 27 factual situations to assess the presence or absence of the center of interests in Italy, with reference to both emotional and personal ties (presence of the spouse, children or other stable ties in Italy), and with reference to economic interests (availability of real estate activities in Italy or obtaining income in the country, even through a third party).

Finally, we illustrate the possibility of extending the optional regime to family members, provided that they also transfer their tax residence to Italy, with a substitute tax reduced to 25,000 euros for each family member.

The optional regime if applied lasts up to a maximum of 15 years, subject to revoking the option or if a case of forfeiture occurs. Whilst the fans have more than a month to dream of Ronaldo’s first goals for Juventus, operators now know that the transfer market also operates with a tax code in hand.

Read the article on Rolling Stone magazine

July 24, 2018