This summer, the Olympic Games took place in Tokyo, Japan, bringing together around 11,000 athletes from all over the world. The Belgian delegation counted 121 athletes – the biggest one since Helsinki 1952. After a great performance, Belgium brought home 7 medals in total, of which 3 gold medals, 1 silver medal and 3 bronze medals.
Nina DERWAEL (artistic gymnastics), Nafissatou THIAM (heptathlon) and the RED LIONS (hockey) were the golden champions, while Wout VAN AERT (road cycling) brought home a silver medal. Matthias CASSE (judo), Bashir ABDI (marathon) and Pieter DEVOS, Jérôme GUÉRY and Grégory WATHELET (equestrian sports, jumping) were responsible together for the 3 bronze medals.
Apart from all the fame and publicity, an individual Belgian athlete managing to get a gold medal also earns a cash award of 50.000,00 EUR. Silver medal triggers a 30.000,00 EUR bonus, and a bronze medallist earns 20.000,00 EUR in prize money. For teams, the individual bonuses are lower.
The International Olympic Committee (‘IOC’), which promotes the games, does not hand out any prize money, but provides the medals and sends an ‘Olympic diploma’ to all those who finish in the top eight. Instead, cash awards are handed out by the athletes’ home Olympic committee. For Belgium this is the ‘BOIC’, which is financed by our National Lottery.
The policy of rewarding athletes in recognition of their efforts, achievements and challenging lifestyle, varies from country to country. Some countries are much more generous with their prize money, like for example Singapore that pays its athletes 744,000 USD for a gold, 372,000 USD for silver and 286,000 USD for a bronze medal.
Earlier this week it was announced that our athletes may have to repay a large part of the award to the Belgian Treasury. Finance Minister Vincent VAN PETEGHEM quickly responded that it is “not up to the government to decide which exceptional performance may be exempt from tax”.
What exactly is the legal basis on which the Belgian tax authorities now claim the right to tax?
Most tax authorities impose tax on sports people based on the principles of residency and source of income. The general rule in the double tax treaties is that income earned by a Belgian resident sportsperson is in principle taxable abroad if the activities were exercised abroad.
In other words, our Olympic medallists are only taxable in Japan as the performances took place over there. The Japanese tax authorities decided not to tax any of the athletes’ earnings. This results from contractual arrangements with the IOC governing the host’s state commitment to introduce a favourable tax regime for the Olympics. These are often already undertaken at the bidding stage.
A similar arrangement was put in place, for example, during the Summer Olympic Games 2012 in London. The UK committed to the tax exemption in respect to cash prizes and other awards, such as prizes in kind. This covered bonuses and premiums earned by Olympians in recognition of their performance, irrespective whether the prize was paid or offered by a public entity (government) or private business (sponsor). It also does not matter in which country the payment was made.
Article 23 of the tax treaty with Japan stipulates that Belgium exempts such income from taxation only on the condition that it has been actually taxed in Japan. Belgium therefore regains the right to tax the awards since they have not been taxed in Japan. The ‘right to tax’ does not mean that Belgium must effectively tax the income. This depends on our domestic tax rules and internal qualification of this type of awards.
Today, many countries exempt from income tax prizes and benefits in kind received by Olympic Athletes and members of the national team. This is the case, for example, in countries like Poland, China, Portugal, Spain, Romania and several more. Other countries do not provide a special treatment for athletes awarded cash bonuses for victories in international competitions.
In Belgian domestic tax law, prize money will normally be regarded as professional income (taxed at the progressive rates of 25% up to 50%, with some exceptions depending on the age of the athlete) or as ‘miscellaneous income’ from an occasional activity (taxed at a flat rate of 33%). Although this must be determined for each taxpayer separately, it will be difficult to argue that our Belgian Olympic Team should be considered hobbyists rather than professionals.
Since the medal bonuses are financed with public funds (cf. National Lottery), charging tax means handing out an award and then putting it back into the same pocket. At a national level, an exemption is mainly a matter of tax policy and social acceptance that athletes should not pay tax for sporting triumphs which brings splendour to a country.
The Belgian taxman has every right to tax the awards but could decide not to tax our sports heroes on their winnings. Our Finance Minister has confirmed afterwards that he is currently working on “a general legal framework for the taxation of prize money earned by Belgian athletes for exceptional performances“.
Indeed, do exceptional performances not justify exceptional tax measures?