How is the taxation of the income deriving from the economic exploitation of the image rights of actors, sportspeople, and artists carried out? The fiscal discipline for direct and indirect taxes.
Actors, sportspeople, artists use their image daily for promotional purposes, authentic brands willing to pay to make them wear objects, brands, or sponsor services. This is the economic exploitation of the right of the image, which fiscally has some particular peculiarities that I have summarized in this article.
The world of entertainment and the world of sport have one thing in common, which is the commercial exploitation of the image of famous actors, artists, and sportspeople. In return for financial compensation, these personalities are willing to use their image to promote products, services, or brands to link a winning image to that of the company seeking advertising.
Alongside this world, today, we are witnessing numerous personalities who convey their image through online channels, sponsoring and goods, services, or brands in exchange for money. I refer to the phenomenon of “YouTubers” and “influencers.” Also, through online channels, therefore, the economic exploitation of a person’s image rights occurs.
For this reason, considering the importance of this phenomenon, also from an economic point of view, it can be interesting to go into the fiscal implications of this type of activity. Therefore, in this article, without any claim to be exhaustive, I have decided to analyze the budgetary discipline linked to the taxation of the proceeds related to the economic exploitation of image rights. After analyzing the civil aspects, we will see the tax implications for both direct and indirect taxes.
What is the right to the economic exploitation of one’s image?
The possibility of exploiting one’s image for commercial purposes is mainly due to the diffusion of mass media and their increasingly predominant role in the modern world. Thus, today we live in a society where “appearing” becomes (unfortunately) even more important than “being.”
From this aspect, it is necessary to start to identify the fact that our constitutional charter, in art. 2, contemplates the right to the image among the individual’s fundamental rights (as a personal right). However, alongside this recognition of a personal nature, over time, recognizing an economic and patrimonial content to the right of the image has also been affirmed. Thus, each subject has the right to control the income derived from the financial exploitation of his own “name” and image by third parties. It is useless to deny that the image of a famous person represents a strong attraction for many companies that, aware of this image’s economic value, are prepared to pay handsomely to be able to exploit it. The most classic examples are those linked to the world of fashion brands, which “fight” among themselves to dress actors, artists, and sportsmen. At the same time, sportspeople are also sought after by car manufacturers (for example) to promote their vehicles. The examples that can be made are endless, up to the companies that sponsor “YouTuber” and “influencers” to promote various objects or brands.
What is the right of the image?
The image constitutes a distinctive sign of the person. The right to an image is part of the right to personal identity, that is, the interest in not seeing one’s intellectual, political, ideological, social, religious, etc. heritage altered or misrepresented abroad. This is an absolute right of the person, which protects the fact that one’s image is not exposed, published, or divulged without one’s consent and outside the cases provided for by law. The objective of this right is to protect the reputation of the subject.
The right of the image in civil law
Once the case under investigation has been globally framed, let us see how we find the right to image in the Civil Code. It is necessary to premise that the right to the image belongs to the category of the so-called “rights of the personality.” Going into greater detail, the right to the economic exploitation of the personality is based on the discipline of copyright (see, on this point, art. 10 of the Civil Code and articles 96 and 97 of Law no. 633/41). This discipline prohibits the exhibition, reproduction, or sale of the portrait or image of the person without his consent.
Article 10 of the Civil Code
Article 10 of the Civil Code regulates the abuse of the image of others, requiring compensation for damages with the cessation of the abuse by the person who exposes or publishes the picture, except in cases where exposure or publication is permitted by law or with prejudice to the etiquette and reputation of the person himself or of relatives.
From the letter of the norm, a first aspect, particularly significant, emerges. This is because the publication of the personal image or its exhibition is possible (also by third parties), freely, up to the limits granted by the law. However, since this investigation aims not to go into the civil law aspects, let us look at the contractual elements linked to the exploitation of image rights.
How does the sponsorship contract work?
Through the sponsorship contract, well-known personalities lend not only their image but also, for example, their voice to advertise an event that may be of a different nature (sporting, social, cultural, recreational, etc.) or a product, in return for payment by the body or company concerned of a fee.
In these contracts, it is pretty common to foresee an exclusivity at least limited to the product sector. This means that a clause can be included in the agreement which obliges the famous person who advertises, for example, a brand of shoes, not to sign further sponsorship contracts with competitors of the company which first engaged him. The violation of such pacts, depending on the provisions contained in the agreement, may lead to the termination of the contract and may give rise to a claim for damages suffered by the company that first hired the celebrity and that is forced to find another testimonial.
An interesting fact is that, although the type of contract used is not expressly regulated by the Civil Code (and therefore falls among the so-called “atypical contracts“), its diffusion is very well known in today’s world.
Not wanting to go into the details of this type of contract, it is from it that the fiscal aspects connected to the economic exploitation of image rights can be derived.
The fiscal regime of taxation of the economic exploitation of image rights
Let’s look at the right to image from a tax point of view. First, we can see how the personal image of an artist, an actor, or a sportsman represents a crucial intangible element for the achievement of artistic or professional activity. Today the image of a well-known person can also determine their creative activity (e.g., actors are also chosen based on their following).
In this perspective, the transfer (often exclusive) of the image of a character must be classified from a tax point of view. The income deriving from the economic exploitation of the right of the image falls within the hypotheses regulated by art. 54, paragraph 1-quater of the TUIR (DPR n. 917/86). According to this provision, the fees received due to the sale of customers or intangible assets, however, related to the artistic or professional activity, are included in the formation of professional income.
So far, what has been said is that the economic exploitation of the image right falls within the professional activity as per art. Therefore, 54 of the TUIR concludes that the tax treatment of these fees can be equated to those related to the exploitation of copyright.
It is necessary to reiterate how, for tax purposes, it is crucial to arrive after analyzing the civil law aspects of the operation. In fact, in the case in which the economic exploitation of the image rights of a famous person takes place through the promotion of a product or a service, for legal purposes, there must be a genuine commercial agreement (which, as said, is the sponsorship contract). It is from the analysis of such a contract that derive the fiscal consequences related to the taxation of the resulting income.
Direct taxes on image right fees
As already mentioned, the economic consideration received in relation to the financial exploitation of the image right constitutes income from self-employment. This is the case even if such remuneration is not part of the artist, actor, or sportsman’s ordinary professional services. Therefore, the fiscal provision of reference for the taxation, for direct taxes of these fees, is art. 54, paragraph 1-quater, of the TUIR, which considers the components of the professional income all the fees received as a result of intangible elements related to the artistic or professional activity. Indirectly, these are the fees related to the economic exploitation of copyright.
That said, there are no doubts, therefore, that such fees must be received through the VAT number and then through the issuance of an invoice. In some cases, there is the phenomenon of the so-called “star company,” or companies created for the sole purpose of conveying the income derived from the economic exploitation of image rights. These are companies that, often, are constituted abroad to reduce taxation. This is, however, a complicated subject, to which I will refer further on, even if it is not the subject of this analysis.
Returning to the professional income to be managed with a VAT number, it is necessary to specify that the reference criterion, which guides the determination of professional income, is the cash basis. This means that the income from self-employment is determined annually as the difference between:
- Revenues or fees received from professional activity, including image rights, and
- Expenses incurred during the tax period.
Among the fees that contribute to the formation of self-employment income, besides those in cash, there are also those received in kind (such as goods or services sent by companies to various celebrities). This means that such goods (or services), for tax purposes, are considered remuneration in kind. For this reason, their standard value must be identified (ex-art. 9 of the TUIR) to be included among the fees received during the year that will determine the professional income to be taxed.
Application of withholding tax
If the person paying the remuneration is resident in Italy for tax purposes and acts as a withholding agent, according to art. 23 of Presidential Decree no. 600/73, he is required to apply the withholding taxes. In this case, the remuneration paid must be subject to a withholding tax of 20% at the time of payment. This is what is provided by art. 25, paragraph 1, of Presidential Decree no. 600/73.
In the case of a person who pays the fees that are not resident in Italy, the artist or sportsman must self-assess the tax due directly in his income tax return.
Transfer of the economic exploitation of copyright subject to separate taxation
The Revenue Agency, with Resolution no. 255/E/2009, clarified that if the main activity of the artist or sportsman is not attributable to a relationship of self-employment or employment, reference must be made to the obligations not to do or allow (ex-art. 67, paragraph 1 of TUIR).
In this case, if the taxpayer transfers the image right and collects the consideration entirely in one tax period, the taxpayer can choose to subject such amounts to separate taxation. This is because the income is multi-year income which, because of a “cash” taxation, would risk entailing an excessive burden for the taxpayer.
These amounts, in this case, are included in the RM framework of the P.F. Income Model, in particular in section II. However, this remains an option without prejudice to the possibility of taxing the income according to the ordinary IRPEF rates (picture RE).
VAT rules related to the economic exploitation of image rights
The VAT regulations regarding the economic exploitation of image rights concern the need to operate professionally with a VAT number. In particular, according to article 5 of Presidential Decree no. 633/1972, artists and professionals who carry out any kind of self-employed activity on a professional basis are subject to VAT. Consequently, to be subject to VAT, two conditions must be met at the same time:
- The professional and habitual exercise of the
From an objective point of view, the service provided by the artist, consisting in the transfer of the rights to exploit his image, is a service falling within those indicated in Article 3, paragraph 2, no. 2, of Presidential Decree no. 633/72, as the granting of rights similar to copyright.
Once it has been ascertained that the service provided by the artist, consisting in the transfer of the rights to exploit his image, falls within the scope of the application of VAT both from a subjective and objective point of view, it is necessary to examine in detail the single operations that are part of the contract.
Determination of VAT in contracts linked to the exploitation of image rights
Finally, to determine the tax, it is necessary to establish the taxable base and the taxable moment for the transfer of image rights.
Concerning the taxable base, reference must be made to the provision of art. 13, paragraph 2, letter d) of Presidential Decree no. 633/72. According to this provision, it is necessary to refer to the traditional value of goods and services that are the subject of exchange transactions (such as those involving the transfer of image rights).
The typical value of goods or services shall mean the average price for goods and services of the same kind in conditions of free competition in the same state of marketing and at the place and time of the transaction.
Regarding the taxable moment’s determination, the rules of the individual transactions that constitute the exchange must be applied. Therefore, in general, reference should be made to Article 6 of Presidential Decree No. 633/72, which in paragraph 3 provides that the services are considered performed upon payment of the consideration.
Given that in the case examined, the consideration consists in the establishment in favor of the artist of the right to receive the insurance benefit; the Revenue Agency concludes that the moment of performance of the service must be identified at the moment when the request becomes legally available to the artist, i.e., when the contracting company is precluded from indicating a different beneficiary of the insurance benefit.
Economic exploitation of image rights and tax planning
As mentioned, above all, in the world of professional sports (football, basketball, golf, etc.), it is common practice for sportsmen to set up companies (so-called “star companies“) that deal with the management of the rights of their image. The classic example is that of the footballer whose remuneration is divided into two parts:
- On the one hand, income from employment for his sporting activity paid to a sports club;
- On the other hand, the remunerations are linked to the economic exploitation of their image.
In particular, the remuneration linked to the economic exploitation of the football player’s image constitutes a different component for employment. For this reason, some sportsmen have tried to exploit this situation. The common practice is to set up companies with registered offices in countries where the taxation on companies is more favorable than the place where the player plays (and where he usually pays taxes). In essence, this is a well-known way of circumventing tax rules and (often) achieving undue tax savings.
Many sportspeople have tried this route, but it must be said that there have been many tax disputes. The first cases discovered date back to the 90s, with offshore companies set up by athletes in tax havens. You should know that the establishment of companies abroad in a fictitious way, for Italy is the case of “esterovestizione” company, under Article. 73, paragraph 5-bis of TUIR.