Taxation of income received from sports
- Date of issue
- 1/1/2021 - Until further notice
This is an unofficial translation. The official instruction (record no VH/8205/00.01.00/2020) is drafted in Finnish and Swedish languages.
This guide covers the tax issues related to income received from sports by a natural person, from the point of view of the Income Tax Act. In some connections, the guide also briefly discusses questions related to the prepayment of tax. The prepayment of tax is more extensively covered by the Finnish Tax Administration’s guideline Ennakonpidätyksen toimittaminen. In addition, this guide takes a brief look at the preconditions of business activities by athletes. Business activities have been described in greater detail in the Finnish Tax Administration’s guideline pertaining to business operations.
Section 6.3 (Athlete fund) has been revised as a result of amendments to section 116 c of the Income Tax Act entered into force on 1 January 2021. As a result of the legal amendment, the maximum amount of sports income transferable to an athlete fund has increased and provisions on the entry of assets as income have been amended.
This guidance does not cover the taxation of income received from sports in international situations. They are covered by the Tax Administration’s guideline on the taxation of income received from sports in international situations (‘Urheilusta saatujen tulojen verotus kansainvälisissä tilanteissa’, available in Finnish and Swedish). Neither does this guide apply to the tax treatment of payments made to other persons involved in sports, such as judges, coaches or team managers. These taxation issues as well as taxation issues related to the operations of sports clubs are covered, for example, by the Finnish Tax Administration’s guidelines Yleishyödyllisten yhteisöjen ja julkisyhteisöjen vapaaehtoistoiminnan ennakkoperintäkysymykset and Verotusohje yleishyödyllisille yhteisöille.
The tax legislation does not define ‘sports’ and ‘athlete’ as concepts. Generally speaking, sports means competing to establish mutual superiority according to predete mined rules. Training and competing are characteristic of sports.
Traditional sports practised by athletes include various physical sports, such as winter and summer Olympic sports, for example, athletics and Paralympic sports. Athletes also include golfers, jockeys, football players, tennis players, and rally drivers, etc. The term ‘sport’ also covers skills that require a high level of ability in which success is not based on physical performance; such as billiards, snooker, chess or bridge tourna- ments. Sport also covers e-sports in which the competitors play various computer games on teams or as individuals. Nevertheless, poker is not considered a sport. Poker is covered by the Tax Administration’s guideline Pokeritulojen verotuksesta.
A hobby may turn into the athlete’s profession through dedication and success. As an example, there is a whole gamut of sports activities between a student swimmer and a top professional rally driver. From the point of view of taxation, sports may take the form of a leisure activity, an income-earning endeavour, or a business operation. From the aspect of taxation, the level at which the sport is practised or how goal-oriented it is has no relevance. As a rule, all income received from sports is subject to tax. Only income that has been specifically determined as tax-exempt is exempt from tax. The nature of the sports activity concerned determines how the income received from it is taxed.
Drawing the line between business activity, income-earning activity or leisure activity or comparable activities is covered by the Tax Administration’s guideline Yritystoiminta, tulonhankkimistoiminta ja harrastustoiminta henkilöverotuksessa.
2 Fiscal nature of sports activities
2.1 Leisure activities
For many, sport is a leisure activity practised neither professionally nor for the purpose of earning an income. Potential income received from sports activities usually only cover the costs arising from the activity.
Compared to an actual activity to earn an income, practising sports is typically a leisure activity for which the person does not earn a living and which the person practises for purposes other than to earn an income. When it comes to leisure activities, earning an income often comes second to the other reasons for the activity, such as mental well-being or keeping fit.
In legal practice, for example, large-scale but loss-making harness racing is deemed a leisure activity. If the activity is unprofitable for several consecutive years, this may indicate that the activity is not practised for the solid purpose of earning an income; instead, from the point of view of taxation, the activity is comparable to a leisure activity. The concept of income in accordance with the Income Tax Act (1535/1992) is exten- sive. That is to say, taxable income subject to the statutory limits comprises the income received by a taxpayer in cash or a benefit that has a monetary value (Income Tax Act, Section 29). Hence, income received from the practise of sports is also subject to tax. According to the payment principle, income arising from leisure activities is considered to be income for the tax year in which it was withdrawn, entered in the income earner's account or otherwise controlled (Income Tax Act, Section 110).
Pursuant to Section 31(4) of the Income Tax Act, living expenses are not tax-deducti- ble. Living expenses represent expenditure that occurs regardless of whether income- generating activities are pursued or not. On the whole, expenses arising from leisure activities are considered non-tax-deductible living expenses and, as a result, no losses are verified in taxation for the losses arising from the leisure activity. The deduction of expenses related to leisure activities has been discussed in greater detail below in section 4.1.
Anne is an avid archer. Anne covers some of the related expenses incurred by the rewards she has won in archery. Anne makes a living as an accountant. Despite her long career as an archer, Anne’s archery activities are comparable to leisure activity with regard to taxation.
2.2 Income-earning activities
Sport has the clear purpose of earning an income when the income earned through sport at least partly covers the athlete’s living expenses after the expenses related to said income have been deducted. In this case, the expenses related to earning taxable income may be deducted in taxation. If a person makes a living through sports or a sport scholarship, the person is deemed to be acting with the firm purpose of earning an income, even if they do not earn their entire income from sports.
2.3 Business activity
Pursuant to the Business Income Tax Act (360/1968), section 1, business refers to business and professional activities. The business income source includes all the taxpayer’s business and professional activities. Professional activities refer to activities that are business-like in nature but smaller in scale, where the taxpayer’s personal competence often plays a big role.
As the concept of business and professional activities has not been legally defined, the concept of business activity is assessed on the basis of established characteristics and legal practice. Based on legal practice and taxation practice, the common characteris- tics of business activity include, for example, the intent to make a profit (revenue stream) and the independence, scope, deliberateness and continuity of the activity as well as the financial risks linked to it. When it is necessary to draw a line, the solution shall always be based on the overall assessment on a case-by-case basis.
Athletes may also be engaged in activities of a nature that meets the characteristics of business activity listed above. An athlete’s business operations and the income they provide will then be taxed in accordance with the Business Income Tax.
The characteristics of business activity have been discussed in greater length, for in- stance, in the Tax Administration’s guideline Yritystoiminta, tulonhankkimistoiminta ja harrastustoiminta henkilöverotuksessa. Business activities subject to different corpo- rate forms (company, partnership, limited company) and the related taxation have been discussed in the Tax Administration’s guideline on business taxation.
According to section 45(1) of the Value Added Tax Act (1501/1993), value added tax is not paid on the fee of a performing artist, some other public performer, or an athlete. A fee paid for a sports performance is not subject to the Value Added Tax Act, even if the payment is paid to the athlete’s company. Nonetheless, athletes may also engage in activities subject to the value added tax, such as the sale of advertising space or working as a PE instructor. You can find more information on the subject in the Tax Administration’s guideline Liikuntapalvelujen arvonlisäverokanta.
3 Athlete´s income subject to taxation in accordance with the Income Tax Act
3.1 On the taxability of income
All income received by a person in cash or a benefit that has monetary value is taxable income, unless it has been specifically prescribed as tax-exempt (Income Tax Act, sec- tion 29). Taxable income includes, for example, salaries and wages or corresponding income, a pension or compensation received instead of such income (Income Tax Act, section 61). Pursuant to Section 110(1) of the Income Tax Act, income is deemed to have been earned during the tax year in which it was withdrawn, deposited into the taxpayer’s account or otherwise made available to the taxpayer.
Thus, taxable income includes a salary or wage, fee or other reward or compensation paid to the athlete, as long as it has monetary value. In most cases, it is a case of income taxed as earnings. A trophy or equivalent item received as a prize that has mainly emotional value is not considered taxable income. Taxable capital income includes, for example, income received by an athlete when s/he sells a reward s/he has earned.
Athlete’s taxable income also includes income received on the basis of the athlete status other than income based on the actual sport performance, such as advertising fees and sponsorship income. Fees received for interviews, product presentations, etc., are also included in the athlete’s earnings.
Below, an athlete's remuneration received for sports activities have been divided into four categories: wages paid to the athlete, fees paid to the athlete, and other sports- related or unrelated income received by the athlete.
3.2 Wages paid to an athlete
If the athlete is in an employment relationship in accordance with the Value Added Tax Act with the payer, the remuneration paid for work, i.e. training, is regarded as wages paid to the athlete. According to section 13 of the Prepayment Act (1118/1996), wages include all wages, fees, benefits or compensation received in an employment relationship. Wages also include fringe benefits received in an employment relationship.
The clearest case of an employment relationship and wages paid to an athlete is, for example, a situation in which an athlete playing for a team agrees by means of a player contract to play sports (that is, take part in matches and training) for compensation. Even a national team athlete may be employed by the national sport association. In this case, any remuneration other than travel expenses paid by the national sport as- sociation is considered wages.
In some cases, even an individual athlete may play sports subject to an employment relationship. For instance, a fee received for driving a harness horse or a racing car may be wages, if the fee is paid by a stable on behalf of which the driver is competing.
3.3 Fees paid to athlete
3.3.1 On fees paid to an athlete
A fee paid to an athlete is compensation other than wages paid directly or indirectly on the basis of a sporting performance. A fee paid to an athlete is based on the athlete’s personal contribution, sporting performance or status as an athlete. An athlete's fee may be paid, for example, for the athlete’s participation or ranking in a competition, or to the best athlete of a sporting event. The fee may also be paid as a fringe benefit. Remuneration paid for training, such as training or coaching subsidies, are mainly fees paid to an athlete, unless it has been specifically deemed tax-exempt.
Fees paid to an athlete include, for instance, competition prizes, fees based on advertising or sponsorship agreements, participation fees, and other fees based on the athlete status, if the recipient is not employed by the payer. Fees paid in some other form than money are valued against their fair value. Fair value refers to the probable transfer price of the property, i.e. the price for which the property would be sold to another party in a sale between strangers.
If an athlete gains possession, for instance, of a house or car, it is considered a fee paid to an athlete, as long as the benefit was not received as subject to employment. For example, a company car or sponsored car received by an athlete is considered a fee paid to the athlete. Hence, the benefit will be valued in accordance with the fringe benefit decision. Fringe benefits have been covered in greater detail in the Tax Administration’s guideline Luontoisedut verotuksessa.
An athlete may be represented by a sports manager. In this case, the manager’s client is the represented athlete. For example, if a sponsor pays the manager’s fee on behalf of the athlete, the fee paid by the sponsor is the athlete’s taxable income, i.e. a fee paid to the athlete. However, this does not constitute an employment relationship between the manager and the athlete. Instead, as a rule, this is a case of a commission relationship.
3.3.2 Competition prizes
Prizes received for a sporting competition are the recipient’s taxable income if the prizes have been received on the basis of ranking or performance and have a monetary value. A trophy or an equivalent customary item received as a prize that has mainly emotional value is not considered taxable income. If the athlete sells his/her medal or trophy, the profit gained from the sale is taxable capital income.
Taxable competition prizes received in property are valued in accordance with their fair value. Prize items received from foreign sources are valued at their fair value by eval- uating them against the price level in Finland. If import tax is payable on a foreign-source award, the amount of tax is deducted from the goods’ fair value, and the difference is taxable income for the recipient. It is noteworthy that car tax is not an import-related tax. Hence, income tax is also determined by the percentage of car tax.
Mary, who plays golf as a hobby, takes part in a golf cham- pionship. She comes third in the competition, winning a prize item worth EUR 90.
By nature, the prize won by Mary is a fee paid to an athlete. The organiser of the competition may not pay withholding tax for the prize item, but the prize is nonetheless considered Mary’s taxable income, so the organiser must report its monetary value, i.e. EUR 90, to the Incomes Register.
Peter is a professional cyclist for a team that is a limited company of which Peter is not a shareholder. Peter takes part in a competitive tour. The stable compensates the athlete for the related expenses. Peter wins the whole tour. The reward is EUR 10,000.
The organiser of the competition pays the amount won by Peter to Peter’s stable as a competition prize. Peter is employed by the stable, which pays him monthly athlete’s wages. In addition to the prize money, the stable pays Peter the agreed bonus. The success-based bonus is part of the wages paid to Peter as an athlete and hence subject to withholding tax.
3.3.3 Sponsorship income
Usually, a sponsorship agreement refers to a cooperation agreement that an athlete makes with a company. Sponsorship is bilateral in the sense that both parties benefit from the cooperation as a result of the agreement. The company pays the athlete compensation, for instance, for the athlete to use the company’s products, appear in the company’s events or advertise the company in their sportswear, car, interviews or social media. This way, the athlete increases the company’s visibility. The sponsor does not make a donation but expects a contribution in return at a fair value.
Depending on the agreement, the remuneration based on the athlete status paid by the partner company to the athlete for a product presentation, advertising the company’s product or an appearance or interview may be either a fee paid to the athlete or wages in accordance with section 13 of the Prepayment Act. Depending on the contractual relationship, it may also be compensation paid for work carried out for another party, other income or business income pursuant to section 25 of the Prepayment Act. Even if the sponsorship income were paid to the sports club represented by the athlete in- stead of to the athlete personally, the income would nevertheless represent the athlete’s taxable income if used to support the athlete.
Advertisement or sponsorship income that is not related to the athlete’s status is not regarded as fees paid to the athlete. Instead, depending on the contractual relationship, it is either wages, compensation for work or other earnings. An example of this would be an interview granted by the athlete that is linked to the athlete’s personal life or hobby.
A partner company may also pay the athlete for advertising its products in the company’s products. In this case, the products are valued at their fair value. The value used as the basis of taxation may be lowered by the amount of discount commonly granted to customers.
The athlete may request that the direct expenses pertaining to the fee are deducted from the taxable sponsorship income paid as fees to an athlete before tax-withholding (Prepayment Act, section 15). Nonetheless, the whole sponsorship income will be subject to tax in the final taxation, but the athlete may request the expenses arising from the competition to be deducted on the athlete’s tax return.
Marty drives rally as a hobby. He is sponsored by A Ltd. The sponsor is advertised on both sides of Marty’s racing car. Marty also has the sponsor’s advertisement on his overalls. The sponsor pays Marty EUR 1,000 for the advertisements for one season. Marty’s sponsorship income falls under fees paid to an athlete in accordance with the Income Tax Act.
Marty has been driving rally for years, making his primary living that way. Marty pursues his sporting activities as a sole proprietor under the business name of Marty Motor. He is sponsored by A Ltd. The sponsor is advertised on both sides of Marty’s racing car. Marty also has a big advertisement by the sponsor on his overalls. The sponsor pays Marty EUR 10,000 for the advertisements for one season.
According to the agreement, the sponsorship income is paid to Marty Motor, and the income is business income by nature. The company Marty Motor is listed on the prepayment register, so the payer does not withhold tax from the sponsorship income.
There is more information regarding the taxation of income received from advertisement agreement or other partnership agreements between an athlete, a national sport association and a partner (a so-called tripartite agreement) in section 6 below.
3.4 Other sports-related income
3.4.1 Grants, scholarships and coaching subsidies
At the offset, grants, scholarships and coaching subsidies are the athlete’s taxable income. The actual nature of the grant paid to the athlete defines the type of the payment and how it is treated from the taxation point of view. The label under which the payment is made is not of material importance.
Only grants or scholarships awarded for studies, academic research or artistic activity may be tax-exempt (Income Tax Act, section 82). In addition, the coaching or training subsidies paid from state funds to top athletes determined by the Ministry of Education and Culture are also tax-exempt (Income Tax Act, section 82(1)(4)). Grants or scholarships received by an athlete for another purpose are always taxable income for the recipient, regardless of the payer.
For example, a study scholarship received by an athlete is subject to the general principles of taxation applicable to scholarships. According to established practice, a study scholarship paid by a sports club to an athlete is considered a fee paid to an athlete (Supreme Administrative Court, 1980 II 565). Compensation for direct sports-related expenses against a receipt is also taxable income.
Liz has represented her sports club with distinction for several years. Liz is beginning her studies at a school in her hometown and has decided to continue her career as an athlete parallel to her studies. The sports club wants to support Liz’s career and has granted her a EUR 1,000 scholarship to cover her increased expenses. For Liz, the scholarship is a fee paid to an athlete and as such, subject to tax.
The Finnish Tax Administration’s guidelines Yleishyödyllisten yhteisöjen ja julkisyhteisöjen vapaaehtoistoiminnan ennakkoperintäkysymykset and Apurahojen, stipendien, tunnustuspalkintojen ja muiden palkintojen verotus cover the tax treatment of scholarships, grants, subsidies and gifts paid by sports clubs to their actors.
The payer must report scholarships, grants and subsidies paid to a natural person, the minimum amount of which during a calendar year is EUR 1,000 (Verohallinnon päätös yleisestä tiedonantovelvollisuudesta). The recipient of a grant or scholarship must always report all received taxable grants and scholarships on their tax return. Scholarships, grants and awards for merit will be subject to tax as income for the payment year. A grant or scholarship that is deemed a fee paid to an athlete should be reported to the Incomes Register using an earnings income report according to the instructions of the Incomes Register.
3.4.2 Awards for merit
An award for merit is tax-exempt on the condition that it was retrospectively awarded in recognition of academic, artistic or non-profit activities (Income Tax Act, section 82(1)(2)). Normally, the granting of an award for merit involves publicity. There must be no interdependence between the person granting the tax-exempt award for merit and the recipient of said award, such as an employment relationship, because rewards received from the employer are considered wages. An award handed in a competition is not an award for merit; it is a competition prize.
An athlete who has performed well in an important international competition may receive a donation from their home municipality, such as a piece of land. Such a payment made by a public corporation can be considered a tax-exempt award for merit. For instance, an Olympic winner’s activities may be deemed to be non-profit activities on the grounds that the athlete is a role model to encourage sports activities in Finland. In this case, the individual act or performance must have been visible outside the normal sphere of publicity and the granting of the award must have raised a significant amount of publicity at the national level.
Awards others than those received for success in the above-mentioned important international competitions are considered fees paid to an athlete and are therefore taxable income. For example, the 10,000 Finnish mark award for merit granted by a bank to the player of the year in Finnish baseball was the athlete’s taxable income, not an award granted as recognition for non-profit activities (Supreme Administrative Court, 1986-B-II 549).
It is not necessary to pay gift tax for a sum of money received as the result of a general collection, as long as the payments received from each donor are less than EUR 5,000 (378/1940, Inheritance and Gift Tax Act, section 19 a). Income received by a general collection is not taxable income for the recipient.
Minor so-called ‘thank-you gifts’ have been deemed tax-exempt payments in taxation. A thank-you gift may be granted to an athlete, for example, for voluntary work or representing a sports club. The maximum value of a minor thank-you gift is EUR 100 per year. A tax-exempt thank-you gift may not be personally chosen by the athlete or take the form of money. Neither can it be compensation for work performed or a reward for a sporting performance. The policy regarding thank-you gifts should apply similarly to all members of the same community.
After a quiet stretch lasting several years, Charlie has risen close to the national top in shot-putting. The long-term work by Charlie and his sports club has also been positively noted by the media. The number of budding shot-putters at the sports club has clearly increased. The sports club wants to thank Charlie for creating a positive example for children and gives him a vase worth EUR 97. For Charlie, the vase is a tax-exempt thank-you gift.
3.5 Other income received by athlete
3.5.1 Compensation for use
Compensation for use (Prepayment Act, section 25(1)(2)) is paid, for example, for the use of copyright or industrial rights, for user rights or for the selling of user rights. Copyright may be related, for example, to a literary work, stream or photograph. For an athlete, the compensation for use is taxable earnings.
Peter has uploaded videos of him playing Minecraft on the internet. Peter’s videos have more than 100,000 followers. The compensation paid to Peter for playing the videos is compensation for use.
3.5.2 Agent fees and signing bonuses
The agent representing an athlete acts as the athlete’s representative. Hence, the athlete is the agent’s principal and client, in which case the athlete is liable for the fees charged by the agent. If the sports club pays an agent fee for negotiations held on behalf of the athlete that lead to an employment relationship, the amount of the agent fee also represents the athlete’s wages in accordance with the Prepayment Act, section 13. On the other hand, the athlete can avoid the agent fee in taxation as expenses resulting from the gaining of an earned income.
An athlete may receive a signing bonus in connection with signing a player contract. Usually, the signing bonus is seen to be linked to the sporting activity that the athlete will take up after signing the contract on the basis of the employment agreement. In such a situation, the signing bonus represents the athlete’s wages subject to withholding tax (Supreme Administrative Court, 2020:96). Earned income comparable to such income also include the fees linked to the termination of the athlete’s employment relationship.
An agent can also represent a sports club, for instance, as a player scout. For this task, the assignment or employment contract is between the sports club and the agent. A fee or salary paid to an agent on the basis of an assignment leading to a player contract does not create an obligation for the athlete subject to the assignment.
3.5.3 Lecture and coaching fees
An athlete’s personal lecture or presentation fee is the athlete’s taxable earned income regardless of whether the athlete has an employment relationship with the payer of the fee or not. However, if the athlete operates as a company in such a manner that the characteristics of business activity are met, the lecture or presentation fees belonging to the company’s line of business are considered the company’s earned income – not the athlete’s personal wages. The various lecture and presentation fees paid to different parties have been discussed in greater detail in the Tax Administration’s guideline Palkka ja työkorvaus verotuksessa.
A fee paid to an athlete for coaching or teaching a sport is a payment based on personal work and considered wages if the recipient is employed by the payer. Otherwise, the payment is considered compensation for work received by the athlete. However, if the athlete operates as a company in such a manner that the characteristics of business activity are met, the coaching or teaching fees belonging to the company’s line of busi- ness are considered the company’s earned income – not the athlete’s earned income.
4.1 On the deduction of expenses
According to section 29 of the Income Tax Act, expenses incurred as a result of gen- erating or maintaining income (natural deductions) are tax deductible. The expenses related to earning an income have been discussed at a general level in the guideline Tulonhankkimiskulut ansiotulosta, and the principles of deductibility listed in said guide- line also act as the premise for the taxation of income received from sporting activities.
When it comes to the deductibility of an athlete’s expenses, the material factor is whether the expenses have been paid in order to earn an income or not. If the main reason for the sporting activities is not the earning of an income, the majority of the expenses does not apply to the earning of an income and at the offset, the expenses are non-deductible living expenses. If it is possible in some events or situations to earn an income from sports activities comparable to a hobby, the expenses related to said events or situations can be deducted from the potential income. If such an activity results in more expenses than income, the activity is not deemed to take place for the serious purpose of earning an income, and the loss will not be verified.
Mary primarily plays golf as a hobby, but occasionally she also takes part in golf competitions. Over the course of a year, she takes part in five competitions, does well in one of them and receives a prize item worth EUR 1,000. She does not earn any other income from golf. Mary has many golf-related expenses, such as membership fees, pay- ments, equipment hire as well as the competition entry fees and travel expenses.
The prize won at the competition is Mary’s taxable earned income (athlete’s fee). Mary can deduct the competition expenses from her income, i.e. the entry fees and the travel expenses linked to travelling to the loca- tion of the competition. As a rule, the other expenses related to her hobby are her non-deductible living expenses.
Drawing the line between business activity, income-earning activity or leisure activity or comparable activities is covered by the Tax Administration’s guideline Yritystoiminta, tulonhankkimistoiminta ja harrastustoiminta henkilöverotuksessa.
4.2 Income-earning expenses in athlete’s taxation
In order for an expense arising from sport to be deemed deductible, it must always be closely linked to the sport in which the athlete competes. If necessary, the deductibility of the expenses must be justified by a reliable report. Otherwise, it is a case of a non-deductible living expense. Non-deductible expenses include the expenses incurred by earning a tax-exempt income as well as the taxpayer’s living expenses, such as rent, childcare expenses or housekeeping expenses.
The deduction of taxes for an athlete always requires that the same expenses have not been compensated to an individual athlete by a training fund or to a player by a team or sports club. For the expenses to be tax deductible, the athlete must have in actuality paid for the expenses themselves.
Deductible athlete expenses include the expenses linked to training or competitions pertaining to the athlete’s own sport. In some cases, the same piece of equipment or clothing may be used both for sports and in private life. In such cases, the expenses are divided on the basis of the report on the use of the equipment or clothing to deductible sports-related expenses and non-deductible living expenses. Non-deductible expenses include the expenses arising from the athlete’s own income-earning. Hence, for example, the share of the travel and accommodation expenses of a family member joining the athlete for the training camp or competition trip is not deductible.
Sporting equipment maintenance costs and the acquisition costs of fairly small sporting equipment are deducted in the year in which they were paid. If the expected useful life of the piece of sporting equipment is more than three years, the acquisition cost is deducted by means of depreciation. The depreciation is carried out separately for each piece of equipment, and the amount thereof is at the maximum 25% of the expenditure residue. Any sporting equipment the acquisition cost of which does not exceed EUR 1,000 is usually considered to have a useful life of no more than three years, in which case the cost can be deducted in one lump sum. Nevertheless, the acquisition cost will be deducted by means of depreciation if the taxpayer can prove that the economic useful life of the piece of sporting equipment is more than three years.
The expenses for the production of income of an athlete who receives earned income is deducted to the degree that the amount thereof exceeds the amount of the deduction for the production of income (EUR 750 from 1 January 2017 onwards, Income Tax Act, section 95(1)(4)). The income-earning deduction is only made from earned income. If the athlete receives taxable income other than wages, the expenses for the production of income are deducted from the earned income in accordance with the Income Tax Act, section 30(3).
4.3 Expenses based on breach of contract
Based on a breach of contract (such as a doping violation or a competing sponsorship agreement), an athlete may have to repay coaching subsidies received from a national sport association or sponsorship income received from partners.
If taxable income received by an athlete is later collected back, this may be taken into account by rectifying the taxation of the original income payment year. The rectification may not be applied to the taxation of the year when the athlete repays income that the athlete has received earlier. In practice, the athlete has to submit a rectification request, requesting that the income taxed in an earlier tax year be decreased on the basis of the claim for recovery applicable to it.
A contract may also include a condition upon which the athlete has to pay a contractual penalty on the basis of a breach of contract. If the purpose of the contract from which the payment of said contractual penalty arises was to earn taxable income, the contractual penalty paid by the athlete is deductible in personal taxation as an expense resulting from income-earning in the payment year. The athlete has to be able to explain how the contract and contractual penalty are connected to the earning or retention of taxable income.
5 Expense allowance
5.1 On expense allowance in income taxation
In income taxation, income received from sports is subject to tax. This also applies to the expense allowance paid to the athlete. This is why the expense allowance paid to an athlete to cover the costs arising from sports activities, except for travel allowance which is already tax-exempt, is taxable income for the recipient.
Taxable income in accordance with the Income Tax Act, section 71, does not include compensation received by the athlete from their employer for travel expenses, a daily allowance, meal allowance or accommodation allowance. Neither does taxable income comprise compensation paid to cover the travel expenses or reasonable accommodation expenses related to the athlete’s travelling to a secondary workplace due to the athlete’s duties.
A person receiving fees paid to an athlete is not employed by the payer. At the offset, the travel expense allowance paid to the recipient of a fee paid to an athlete is not tax- exempt. However, in taxation practice, the daily allowance or travel expense compensation paid to the recipient of fees paid to an athlete are accepted as tax-exempt.
A business trip refers to a temporary trip made by the taxpayer to a specific place of work to perform work-related tasks. An actual place of work refers to the location where the taxpayer works on a permanent basis. An athlete may also have an actual place of work. Travel expense compensation may not be paid tax-exempt for the athlete’s trips to their actual place of work. According to decision 2003:50 of the Supreme Administrative Court, regular training venues and home game venues comprise an athlete’s actual places of work, and a sports club may not compensate for the expenses arising from the trips between the athlete’s home and these locations tax-exempt.
The exemption from tax of expense allowance is extended in section 71(3) of the Income Tax Act to apply to the daily allowance and travel expense compensation received from a non-profit organisation for trips made by the assignment of said organisation subject to certain limitations in situations where the recipient of the allowance is not employed by the payer or otherwise does not receive wages from the payer. This regulation also applies to the recipients of fees paid to an athlete.
An athlete who practices business activities as a company may receive tax-exempt travel expense compensation from their company, such as daily allowance or kilometre allowance, as long as the preconditions for the payment of said compensation are met.
The issues pertaining to travel expense compensation are discussed in the Finnish Tax Administration’s guidelines Työmatkakustannusten korvaukset verotuksessa and Yleishyödyllisten yhteisöjen ja julkisyhteisöjen vapaaehtoistoiminnan ennakkoperintäkysymykset.
If the payer has not compensated the athlete for the expenses resulting from a business trip, the athlete may deduct the resulting expenses on their tax return as expenses for the production of income. The deduction of expenses arising from business trips has been discussed in the Tax Administration’s guideline Matkakustannusten vähentäminen palkansaajan verotuksessa.
5.2 Taking into account direct expenses in prepayment of tax
Section 15 of the Prepayment Act decrees how direct expenses applicable to income should be taken into account when withholding tax. According to the provision, the employer may, upon the employee’s request, compensate the employee for the direct expenses resulting from the employee’s work or deduct the share of the expenses prior to tax-withholding.
When withholding tax, such expenses may include the expenses related to tools or materials, travel or entertainment costs and other actual direct expenses arising from the employee’s performance of their duties. The payer will then withhold tax from the amount of wages minus the amount of the expense allowance. In addition to an employed athlete, the provision shall also be applied to the payer and the recipient of fees paid to an athlete.
Hence, the above-mentioned procedure applicable to the prepayment of tax does not apply to the tax-exempt compensation for travel expenses pursuant to the Income Tax Act, section 71, received by an athlete. It applies to an expense allowance paid by an employer or, for instance, a competition organiser that is exempt from tax-withholding. The taking into account of direct work-related expenses in the prepayment of tax is based on an actual expense caused to the employee and occurs by request of the recipient of the payment. The athlete must provide the payer with a receipt for the direct expense. For example, a nutritional supplement allowance or a dietary supplement allowance does not in legal practice constitute direct expenses arising from sports.
Pursuant to section 15 of the Prepayment Act, expenses paid without tax withheld com- prise the athlete’s taxable income. For taxation purposes, the athlete must issue the corresponding request for the deduction of the expenses using their tax return, in which case the expenses will also be taken into account in that tax year’s taxation. There is more information about income taxation deductions in chapter 4 of this guidance.
Sally takes part in a skiing competition. The entry fee is EUR 50. The actual expenses arising from Sally’s trip to the location of the competition and back constitute EUR 70. Sally wins the competition, earning EUR 500 as a reward.
Sally may request that the organiser of the event compensate for the di- rect travel expenses, for a total of EUR 120, exempt from withholding. In this case, tax will be withheld from the sum of EUR 380 and the organiser will report the entire sum of EUR 500 as Sally’s taxable income. Sally must report her actual expenses of EUR 120 applicable to the competition prize and request the deduction thereof on her tax return.
6 Athlete funds
6.1 General information on the funding of sports income
The active career of an athlete may be quite short, and the earning period may be disproportionately short compared to the retirement age. For this reason, income from professional sports can be funded.
According to the Income Tax Act, section 116 a, an athlete’s income for a tax year does not include the part of their direct sports income (sports income) that is paid subject to the preconditions in accordance with the Income Tax Act, sections 116 b and 116 c, to a national training fund or an athlete fund in connection with a foundation designated by the Ministry of Finance.
Funded sports income comprises monetary rewards from a sport competition and other income received from competing or playing or comparable income, as well as the advertising contracts pertaining to sports or income received from other co-operation agreements where the contracting parties are the athlete, a national sport association and a partner (a so-called tripartite agreement). The coaching or training grants referred to in section 82(1)(4) of the Income Tax Act and the coaching grants received from a national sport association or the Olympic Committee or comparable coaching grants are not considered sports income.
The concept of sports income is materially linked to the coaching or funds for professional athletes created for the income distribution of sports income. In order for income to be considered sports income, the payer must make a payment directly to the training fund or fund for professional athletes. The obligation also applies to situations in which the athlete is represented by an agent or sports manager. In this case, the payer is not obliged to withhold tax from the income paid to the fund. However, the payment directly to a fund of sports income received abroad is not required. Sports income received by an athlete abroad may be transferred to a training fund or fund for professional athletes only back in Finland, if the athlete is able to reliably prove, for example, by showing receipts, that it is a case of sports income in accordance with the Income Tax Act.
6.2 Training fund
The purpose of a training fund is to make sure that individual athletes have the opportunity to prepare in advance for the expenses resulting from training. In accordance with section 116 b of the Income Tax Act, sports income other than wages may be paid to a training fund. Sports income paid to a training fund may be used to cover receipt-based sports or training expenses during the tax year. An employer may compensate employed members of an athletic team for expenses. For this reason, the training fund system does not apply to them.
A training fund may compensate against a receipt for expenses directly linked to training and competing in the athlete’s sport. Training funds have procedures in place according to which expenses can be compensated. Expenses that are deemed purely as living expenses cannot be covered by a training fund. Instead, the link between the expenses and training must be proven by appropriate expense receipts.
The amount left in a training fund at the end of the tax year is deemed the athlete’s taxable income for the tax year to the degree that it has not been transferred to a fund for professional athletes. In accordance with the Income Tax Act, section 116 c, a maximum of 50 per cent of the gross sports income or a maximum of EUR 200,000 per year may be transferred to an athlete fund (see section 5.3 below for more information regarding athlete funds). However, a maximum of EUR 20,000 may be left in a training fund annually exempt from tax for future training (training funds).
Sally has access to a training fund. The sports prizes received by Sally may be paid in full to the training fund without tax withheld. According to the rules of the training fund, Sally may withdraw her assets tax-exempt against an expense receipt pursuant to the fund’s rules of procedure.
Marty’s training fund has accumulated EUR 120,000 during the tax year. Expenses have been covered to the amount of EUR 30,000. Marty leaves a full amount of training funds in the training fund and also transfers EUR 60,000 to an athlete fund. Hence, Marty’s taxable income for the tax year is:
The amount accumulated in the training fund
|EUR 120 000|
- EUR 30,000
- EUR 20,000
Transfer to a fund for pro- fessional athletes
- EUR 60,000
Marty drives rally as a hobby. He is sponsored by A Ltd. Marty has access to a training fund and has made a cooperation agreement with a sponsor as well as a motor sport association (a tripartite agreement). The sponsor is advertised on both sides of Marty’s racing car. Marty also has a big advertisement by the sponsor on his overalls. A Ltd pays Marty EUR 10,000 for advertisements for one season.
A Ltd pays EUR 10,000 directly to Marty’s training fund. Marty withdraws funds from the training fund against an expense receipt to cover his expenses resulting from sports. When withdrawn from the fund, income left after the expenses is regarded as fees paid to an athlete.
If less than EUR 800 per year is paid to the training fund as sports income for two years in a row, the assets left in the fund as a whole are deemed earned income for the tax year following these two years. An athlete may also inform a training fund of the end of his/her career in sports. In this case, the assets left in the fund are deemed income for the reporting year. In both cases, the income is regarded as fees paid to an athlete for the purpose of taxation.
If an athlete dies, the assets left in a training fund are deemed taxable income for the year of death in full.
6.3 Athlete fund
Unlike a training fund, an athlete fund in accordance with section 116 c of the Income Tax Act can be used by both individual athletes and members of an athletic team. Part of the athlete’s wages may also be transferred to a fund for professional athletes. The fund is intended to secure the athlete’s income after the end of their sporting career. For this reason, the funds stored in the fund may not be withdrawn during the athlete’s sporting career.
An athlete whose sports income for the tax year before the deduction of the expenses arising from the earning and retention of the income is at least EUR 9,600 has the right to transfer a maximum of 50% of their gross sports income for the tax year tax-exempt to an athlete fund, but to a maximum of EUR 200,000. Within these parameters, the athlete may also transfer, to an athlete fund, funds accumulated in a training fund at the end of the tax year.
Sally’s annual sports income accumulated in a training fund is EUR 30,000. Of this amount, EUR 10,000 have been used to cover sporting expenses. EUR 15,000 may be transferred to a fund for professional athletes.
The funds transferred to the athlete fund are entered as income, that is, withdrawn as taxable income in equal instalments in the course of two to fifteen years following the end of the athlete’s career in sports. Within these parameters, the athlete themselves may state the number of instalments. For specific reasons, such as disability or unemployment of at least one year, the funds may be entered as income faster than this and deviating from balance sheet items (Income Tax Act, section 116 c).
The funds entered as income from the athlete fund represent taxable earned income in full. The return on the assets accumulated in the fund is deemed income for the tax year following the last year the assets are entered as income. The wages paid to an athlete that are transferred to an athlete fund are also wages paid to the athlete when withdrawn from the fund (Central Tax Board, 28/2010). Equally, a fee paid to an athlete that is transferred to the fund is also a fee paid to the athlete when withdrawn from the fund.
A career in sport is considered to have ended if the sports income remains below EUR 9,600 for two consecutive years, and the athlete is unable to prove to the athlete fund that they will continue their career in sport. A career in sport may come to an end as a result of an injury, or the athlete may announce that their career is over.
If an athlete dies, the assets left in a fund for professional athletes are deemed taxable income for the year of death in full.
6.4 Funded sports income and incorporation of sports activities
If individual athletes incorporates their sports activities, they are not deemed to have ended their career in sport at the time of incorporation as long as the athletes can prove to the fund that they will continue their sports activities, for example, via a limited company they have founded. This is why the funds transferred to an athlete’s training fund or athlete fund prior to the incorporation are not entered as income as a result of the incorporation (Income Tax Act, section 116 b(2) and Income Tax Act, sections 116 c(2) and (3)). The funds residing in the training fund or fund for professional athletes are not entered as income in accordance with the above-mentioned regulations until the athlete’s career in sport has actually ended.
An individual athlete can no longer transfer the income received from sports to a train- ing fund or fund for professional athletes after the incorporation of their sporting activities, because the income in question represents the income of a company engaged in business activities. Neither can the athlete use sports income received from sports or training paid earlier to a training fund to cover expenses after the incorporation, because the expenses that occur after the incorporation are considered to be the expenses of the company engaged in business activities. However, the athlete may still transfer the funds remaining in a training fund at the end of the incorporation year exempt from tax in accordance with the Income Tax Act, section 116 b(1).
If the athlete withdraws funds after the incorporation of his/her sporting activities that s/he has transferred to a training fund or fund for professional athletes, or transfers them to his/her company engaged in business activities, the funds will become subject to tax as the athlete’s personal earned income at the time of withdrawal or transfer.