By Kevin Offer, member of the editorial board of Sports Law and Taxation
With the Olympics in Japan over, athletes turn their attention to Paris in three years’ time. However, for some, the effects of success in Tokyo may lead to attention from tax authorities. It is therefore important for athletes to get their tax affairs in order when filing their next returns. Whilst athletes may be perceived as unpaid amateurs it is common for success in events such as the Olympics to be rewarded in the home country. How are such payments taxed?
First the good news. As with all Olympics a tax exemption applies to prize awards to non-resident athletes participating in the Olympics and Paralympics in Japan. No taxation will therefore arise as would normally be the case under Article 17 of the OECD Model Tax Convention. This, exemption, however, only applies to taxation in Japan. It is therefore necessary for the athlete to consider the tax position within their country of residence.
The payments made to athletes for success can vary immensely. The UK pay nothing for a medal win although do provide support for the develop of athletes preparing for the Olympics. This support will initially be free of tax. However, if the athlete is successful and earns income after success at the Olympics, HMRC may regard the support payments as part of a trade carried on by the athlete and, therefore, taxable.
In contrast, the USA pay athletes for their success at the Olympics at rates of up to $37,500 for a gold medal. A successful athlete in the swimming pool with 3 gold medal wins would therefore receive $112,500 in success payments. The IRS would normally tax those payments in a similar way to lottery winnings but, shortly after the 2016 Olympics in Rio de Janeiro, President Obama signed an act providing an exemption for prize money provided the athlete made no more than $1m during the year. This will benefit some of the lesser known athletes but not all.
One other country with an interesting tax position is India. Local governments, organisations and companies are handing out large sums to successful athletes and the tax treatment of these payments can differ. Reward money paid by the Central and State Governments will be exempt if paid to a medal winner. Payments from others such as a local authority, business, etc. would not be exempt. So, reward money paid by the Haryana, Punjab and Manipur governments to Neeraj Chopra, the first Indian to win a gold medal in athletics, would be tax free. The car said to given to him, however, would be taxed. This compares to payments made by the Haryana government to members of the Indian women’s hockey team which will be fully taxable after their defeat to Great Britain in the bronze medal match.
We hope to publish a more detailed analysis of the tax position in these and other countries in a future issue of the journal.