The Italian tax authorities have tightened controls on tax rules surrounding sporting events. They are also focusing on Formula 1 drivers who have raced in Italy in recent years. The authorities are investigating whether foreign athletes have correctly paid tax on income earned on Italian soil.
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According to international media, the Guardi di Finanza – the Italian financial police – is checking whether income from, among others, the Grands Prix of Monza, Imola, and in 2020 also Mugello, has been correctly declared. The tax authorities are specifically looking at athletes who are not residents of Italy. This situation can cause legal problems for both teams and drivers. This could lead to additional tax assessments of hundreds of millions of euros.
Italian law obliges foreign athletes to pay tax on income they earn in the country. They have now started a broader control because they have not always consistently enforced that rule in practice. The authorities are investigating whether drivers have correctly declared their income and whether there may be outstanding tax over several years. Formula 1 is central to this due to the high salaries of drivers and its popularity.
Criminal offense
The Guardi di Finanza has approached the drivers involved by letter, requesting them to submit their tax returns. They must also contact the authorities to discuss further steps. Teams and Formula 1 personnel may also become part of the investigation. The Italian tax authorities also want insight into contracts and sponsorship agreements to get a complete picture of incomes, in order to retroactively collect unpaid taxes.
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For some drivers, this can have far-reaching consequences, because if the amount of unpaid tax is higher than €50,000, this is considered a criminal offense. This can lead to additional fines in addition to the tax, or even prison sentences of six months to five years, if they cannot collect the taxes. At the moment, it only concerns administrative checks and there is no criminal investigation yet.
Consequences
Levying tax on income of non-resident athletes is not unique. Countries such as the United Kingdom, Australia, and the United States also have similar legislation for international athletes active on their soil. Should the investigation in Italy actually lead to large-scale additional assessments, this could have consequences for the way teams and drivers organize their finances around races in certain countries. Because drivers earn a significantly high amount per year, the tax can run high. For Max Verstappen, who is estimated to have a salary of over 50 million per year, this amount will therefore be incredibly high.
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