As the status of professional athletes is not regulated under Czech law, there is a need for legal interpretation on this matter.
The Supreme Administrative Court has ruled that athletes’ work is of such a specific nature (e.g. the method of their pay, the amount of rest and other non-compliances with the Labour Code), that it is not illegal for clubs and athletes to enter into contracts other than labour contracts. Thus, at least in terms of taxes, athletes can act as self-employed persons.
If athletes are tax residents of the Czech Republic, the tax duty covers their income earned in the Czech Republic as well as their income earned abroad. Athletes are tax res-idents of the Czech Republic if they have their domicile there or if they usually reside there. Tax non-residents are those who are not tax residents or are defined as non-residents by an international convention. Tax non-residents are only obliged to pay taxes in the Czech Republic on their income earned in the Czech Republic. If an athlete meets the definition of a tax resident of two or more countries at the same time, a solution should be sought in the treaties to prevent double taxation. The fourth paragraph of the OECD’s model tax convention to prevent double taxation stipulates further criteria to determine tax residency (the tiebreaker rule).
Paragraph 17 of the OECD’s model convention lays down the special taxation regulation for athletes. The commentary to this convention lists the sports whose participants are considered athletes under the OECD model convention. In addition to football, tennis and motorsports, it includes snooker, chess and bridge.
Current wording of the OECD’s tax convention:
“1. Notwithstanding the provisions of Article 15, income derived by a resident of a Contracting State as an entertainer, such as a theatre, motion picture, radio or television artist, or a musician, or as an sportsperson, from that resident’s personal activities as such exercised in the other Contracting State, may be taxed in that other State.
2. Where income in respect of personal activities exercised by an entertainer or a sportsperson acting as such accrues not to the entertainer or sportsperson but to another person, that income may, notwithstanding the provisions of Article 15, be taxed in the Contracting State in which the activities of the entertainer or sportsperson are exercised.”
The general regulations under the paragraph 7, which regulates the taxation of profit of companies and entrepreneurs, and paragraph 15, which regulates the taxation of income from labour contracts are not applicable and it is not decisive if the athlete as a tax non-resident is employed or acts as a self-employed person. Their income will always be taxed under the regulation of paragraph 17.
With regard to the future development of Article 17, it is argued that Article 17 should be deleted from the OECD model convention and that athletes and artists should fall under the regulation of Articles 7 and 15. This argument is traditionally upheld in the Netherlands, which for long a time has not implemented the article concerning the taxation of athletes. Another option would be to introduce a new de minimis rule in relation to the taxation of athletes and artists. The application of this regulation would allow states to stipulate that athletes whose income does not exceed a previously specified amount will not fall under the regulation of paragraph 17.
Other proposals mentioned in this document mainly concern the regulation of one-time prize money, income of sports journalists, rehearsal and training issues, the implementation of the gender neutral term of sportsperson instead of sportsman, and others.
By Daniel Koštál, Attorney at Law, Schoenherr
