The tax aspects related to the activity of professional gamers. Obligations associated with the declaration of winnings related to tournaments, the opening of the VAT number, and aspects related to international taxation, including in view of tax planning.
In recent years we have seen a growing media interest in the field of online gaming, e-sports. As a result, more and more young people, often very young, face for fun in this area becoming in some cases of the real “professionals.”
For the most part, these are participations in organized gaming competitions related to virtual sports that can overcome physical and geographical barriers. These events, now organized in every part of the world, have catalyzed the attention of international investors.
Today around the international gaming world, we can find teams of professional gamers with developers, event organizers, investors, and sponsors. It is within these contexts that skilled gamers become paid professionals to win tournaments.
In this context, we must ask ourselves whether and how this issue is regulated at an international legal level. On this subject, it is necessary to state that there is no organic legal regulation that affects the tax treatment of this sector.
Given the requests for advice that we receive in this area, I decided to collect in this contribution all the tax information related to the world of gamers in e-sports. In particular, we will see how to manage tax payouts that make the gamers and when it becomes necessary to operate professionally with a VAT number.
The gaming and e-sports sector is significantly rooted in two geographical areas in the world. I am referring, in particular, to Asia and the United States of America. However, in recent years, we see a considerable increase in gamers from Europe (including Italy).
This sector has a very high turnover being strongly interrelated both with the world of gambling and with the world of sports and games. For this reason, around gamers, we can find essential sponsors willing to invest significant budgets to support teams of gamers able to win tournaments, bringing their brand to the vision of a very young audience.
This situation, to date, has not yet been the subject of a specific legal framework, both at the international level. This inevitably affects the difficulty of framing also at a domestic level, and consequently makes uncertain the fiscal discipline applicable to professional gamers.
It is precisely for these reasons that it would be appropriate to intervene to regulate a growing sector that is proliferating and requires attention on the legal side. Moreover, suppose we look at the fiscal aspect of the industry. In that case, we cannot underestimate the risk of being faced with a tax challenge by the financial administration, which could operate from time to time about the greater promiscuity of the sector with the sports sector rather than with the gaming sector.
As a result of what has been said so far, we can say that gaming (and therefore the professional gamer) does not fall within the sports federations recognized by CONI. Also, this aspect ends up affecting the legal aspects and consequently the fiscal discipline related to the proceeds received by this type of “professional players” of e-sports.
As is usually when there is no legal framework to regulate an economic sector, reference must necessarily be made to the rules currently in force. In these cases, it is necessary to refer a specific industry to the general provisions that regulate the matter. This happens today in many areas, especially in online activities.
This procedure is the one that we must necessarily follow to frame the taxation of income received by a professional gamer of e-sports. It is to understand, identify and communicate the earnings that it gets to bring them within the different income categories provided by the TUIR (DPR n. 917/86). As we shall see, it is possible to attribute the income received, alternatively, among the different incomes, according to art. 67 of TUIR, to the compensations deriving from self-employment activities, according to art. 53 of TUIR, or even to the incomes assimilated to those of dependent work, according to art. 51 of TUIR.
With that said, let’s see how you can classify and break down the income earned by a professional e-sports gamer.
Without claiming to be exhaustive, we can say, as far as our experience in this area, that for a professional gamer, the sources of income can be as follows:
- Income from online gaming activity:
- Prizes and winnings from participation in tournaments;
- Earnings from stable partnerships with gamer teams;
- Income from sponsors and advertising:
- Income from online advertising (on social media such as Twitch, YouTube, Instagram, Facebook, etc.);
- Income from the economic exploitation of one’s image.
It is an essential source of income for the gamer, who trains to participate in more important games. There are international organizations that put up considerable sums for the winners of online gaming tournaments. These are real leagues equipped with prize money divided between the participants in proportion to the place in the rankings achieved.
The organizers’ goal is to offer higher and higher prize pools to get the best gamers to participate in their tournaments. These competitions, in fact, are held online and are followed live by many followers. As you can imagine, the traffic generated by these events can generate substantial revenues that fuel this type of activity.
Participation in gamer tournaments is very often handled through teams. Internationally, there are several teams of professional gamers participating in major games. Each of these teams is comparable to a sports team. We can find, in fact, within the team well-defined roles and a pyramidal organization. The goal of each team is to recruit the best gamers to participate in tournaments.
The gamer participates in the tournament and allows the team to collect the winnings. Then at the end of the year, all the winnings of the various gamers are distributed to the various members. This type of remuneration is advisable if you cannot earn money directly from participating in tournaments.
Millions of followers follow the most famous gamers in the world. Following tournaments or videos posted by gamers generates traffic on various social networks that can be used for advertising purposes. Many social networks, in fact, allow monetization in relation to the number of views obtained. The classic case is YouTube, which, thanks to its monetization program, enables you to earn for each video view obtained.
Often, gamers are contacted by famous brands to link their image to that of a brand to entice followers to do the same. The economic exploitation of one’s image, just as happens with famous people in show business, can generate significant earnings for the most famous and popular gamers.
When a gamer receives income from the activity is no longer possible to speak of a hobby, but it is necessary to talk about self-employment. However, the tax classification of income depends on the type of income received.
Let us try, below, to make some reflections on the subject.
Art. 67, letter d) of the Consolidated Income Tax Law states that they fall into the category of other income:
Winnings deriving from lotteries, prize contests, games, and bets organized for the public and prizes deriving from tests of skill or chance as well as those awarded in recognition of particular artistic, scientific or social merit.
From this provision, we can derive that the winnings from “tests of skill” can include the fees received from winnings at gaming tournaments. Therefore, the proceeds from winnings of prize pools at e-games fall into the category of miscellaneous income for IRPEF purposes.
Indirectly this means that for the management of a mere income from participation in a tournament is not necessary for the gamer to operate with VAT.
In this case, the income received must still be indicated in the tax return in the category of miscellaneous income. This income must be included in the D framework of the 730 model or in the RL framework of the P.F. income model.
In detail, Article 69 of TUIR indicates that the amount to be declared comprises the mere gross winnings obtained. Therefore, any costs incurred by the gamer to realize the winnings must not be taken into account.
On winnings, the gamer will discount IRPEF (Personal Income Tax) according to the various income brackets.
Outside the case of winnings received from participation in online gaming activities, the professional gamer may face the performance of activities of a habitual type. In fact, if the winnings of the tournaments can be framed as occasional income, in some cases, the gamer is to operate in a continuous and habitual, through:
- The hiring of the gamer by an international team;
- The performance of one’s activity in an autonomous manner.
The two possibilities, often alternative to each other, have a tax consequence the classification as self-employment with income from foreign sources in the first case. In the second case, however, activities in an autonomous manner require the opening of a VAT number as a regular gamer.
When the gamer’s activity is carried out independently and habitually over time is undoubtedly necessary to open VAT. In this way, the gamer has the ability to bill both the proceeds from winnings related to participation in tournaments, both the proceeds from the promotion, whether it is carried out on social networks, both from the economic exploitation of its image.
In these cases, the VAT number becomes compulsory for protection in case of tax audits by the Inland Revenue and, above all, to benefit from forms of taxation more conveniently than those provided for occasional services.
The opening of a VAT number is a task that every taxpayer can carry out independently and free of charge. However, when opening the VAT number, it is necessary to indicate one or more specific “Activity Codes” (also known as Ateco Codes).
For a professional gamer, the following may be the main activity codes to use:
|ATECO Code||Description of the activity|
|82.99.99||For the activity of Gamer proper (“other business services”)|
|73.11.02||For gamers who benefit from earnings mostly from social channels (“Conducting marketing campaigns and other advertising services”)|
|63.12.00||To be used by gamers who manage their portal or operate through different portals or platforms (“Web Portal Management”)|
In all cases, it is a professional activity, so registration in the chamber of commerce is not required.
However, it is also necessary to be registered with INPS to pay social security contributions on their fees: in this case, you will proceed to the registration to the “management separate” INPS.
The professional gamer may be subject, alternatively, to one of the following tax regimes:
- Regime Forfettario: tax regime facilitated at 5% (for the first five years of activity). If you wish to know more: “Regime Forfettario: guide“;
- Simplified accounting regime: taxation system with progressive IRPEF rates, but with the advantage of deducting all the costs inherent to the activity carried out. For further information: “Determination of the income in accounting simplified.”
It is not our intention to go into detail at this time on the various aspects related to the taxation of income derived from the activity of e-sport gamers. There are, in fact, several aspects that need to be explored individually. One of all the speeches related to the taxation of income from foreign sources. The element that becomes necessary to deepen when the proceeds are derived from organizations located abroad. In this case, the gamer could be faced with withholding taxes out of the country of the source of income and then situations of double taxation to deal with.
The sector of gamers, online gaming, and e-sports is constantly evolving and spreading. For this reason, it is essential for every gamer to define their tax position to avoid surprises correctly.
It is necessary to know the world of gaming and its earning potential and that of games and sports in general, avoiding nonchalant tax solutions, even if attractive, which could then give rise to disputes by the tax authorities.