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Can athlete-entrepreneurs finally breathe a sigh of relief after the decision of the Supreme Administrative Court? And what about authors and artists?

The Supreme Administrative Court (“SAC”), in an extended panel of seven judges, ruled in favor of athletes conducting business activity.

It seems that this multi-year dispute with tax authorities regarding the possibility of declaring income generated by athletes (and, perhaps, also by other professional, especially in art-related areas) in non-agricultural business activity has finally come to an end.

On June 22, 2015, SAC adopted a resolution with file no. II FPS 1/15 in which it confirmed that when a taxpayer generates revenue from sports activities and if concurrently the statutory conditions of non-agricultural business activity are fulfilled (we’ll come back to this in a while), such revenue generated by the taxpayer is to be considered as revenue from non-agricultural business activity (which makes it possible to apply the 19% income tax rate).

Although this resolution concerns athletes, it seems its effect should echo throughout other professional circles (e.g. actors, directors, writers).

The dispute began when tax authorities questioned the possibility of classifying revenue generated from sports as originating in business activity and thus applying a flat rate tax to such revenue. Tax authorities (and even provincial administrative courts) insisted that since revenue from sports was featured on the list of revenues from activity performed personally (and thus subject to 18% and 32% tax rate), the possibility of classifying such revenue as revenue from non-agricultural business activity is excluded even if the taxpayer generates it in the conditions corresponding to such activity. However, the interpretation of this matter raised so many doubts the SAC decided to settle them by means of a resolution in an extended panel of seven judges.

Fortunately for taxpayers, the SAC reverted the previous, disadvantageous for taxpayers, position upheld by courts. It determined after fulfilling specific criteria it is possible to tax revenue generated by professional athletes conducting business activity as revenue from non-agricultural business activity (which makes it possible to apply the 19% income tax rate).

The aforementioned resolution should without a doubt become compulsory reading for all athletes (but also for other persons – authors, artists) conducting (or planning to conduct) business activity and declaring generated income on the basis of the flat tax rate of 19%.

The practical significance of the resolution

It seems that especially sports clubs (which have not previously used this method) will have an opportunity to shape a new model of cooperation both with athletes and coaches (both athletes and coaches would be able to perform services for the benefit of sports clubs as part of conducting business activity) in a manner that provides certain tax advantages and is safe.


This may result in the following benefits:

  • Athletes’ revenue subject to flat tax rate of 19% and not to 18 and 32% tax rate,
  • no obligations reserved for income taxpayer on the part of an entity cooperating with such athletes,
  • no obligation to pay social insurance contributions on the part of entity cooperating with such athletes.

What to remember?

In order to be able to declare revenue generated from sports as revenue form business activity, the terms and conditions of mutual cooperation have to be shaped in such a manner so that all requirements stipulated for the business activity pursuant to Personal Income Tax Act have been fulfilled.

This model of taxation is permissible under the assumption the taxpayer generated revenue within business activity, as defined in Article 5a item 6 of Personal Income Tax Act, and no negative prerequisites, as specified in Article 5b clause 1 of Personal Income Tax Act, have been fulfilled.

When concluding a cooperation agreement, particular attention should be paid to the latter of the aforementioned criteria, resulting from Article 5b clause 1 of Personal Income Tax Act. The legislature indicated that activities shall not be considered as non-agricultural business activity if the following conditions are jointly fulfilled:

1) third party liability for the result of such activities and their performance, excluding liability for tort, is borne by the person ordering the performance of such activities;

2) such activities are performed under the direction and at a place and time determined by the person ordering the performance of such activities;

3) the person performing such activities does not bear financial risk connected to the conducted activity.

As a consequence, in order to declare taxes within the conducted business activity and on the basis of the flat tax rate (19%), athlete-entrepreneur should fulfill at least one of these criteria, i.e. bear liability towards third parties for the result of such activities and their performance, bear financial risk connected to the conducted activity, perform such activities without clear direction of the person ordering the performance of such activities, at a place and time determined on its own.

Although the ruling concerned athletes, it should be noted that tax authorities based their interpretation of provisions on the same legal basis in reference to authors and artists.

In the case of authors and performers, it seems that their activity could even more easily fulfill conditions specified in the resolution and thus benefit from all the advantages of conducting business activity. For example, a writer almost always will be liable towards third parties for possible infringement of their personal rights and will bear financial risk associated with persuading the publisher to publish his/her book. However, it should not be forgotten that meticulous analysis on case-by-case basis will be indispensable.

#authors #business activity #creators #linear rate #sportsmen #taxes #writers

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