Lafata scores against tax authorities

Last year, the Regional Court in České Budějovice held that the football player may indeed tax his income as a self-employed person (an individual carrying out an independent gainful activity). However, the court considered his activity a liberal profession, where 40% of income can be claimed as expenses, not a trade, where the percentage of income to be claimed as expenses is 60%. The court based its decision mainly on its assessment of the independence criterion, which was not met, as the football player was active in one club only.

Following this adverse judgement, the football player filed a cassation complaint, arguing the discrimination of athletes pursuing collective sports – as those pursuing individual sports commonly tax their income as income from trade. He also pointed out that the tax administrator has never challenged his accounting for VAT, while carrying out an independent economic activity was a necessary precondition for applying VAT.

In its decision, the Supreme Administrative Court first referred to its previous rulings, in which it held that professional sports involved activities of such an ambiguous and uncodified nature that they may indeed be carried out both as employment (under an employment contract) and as an independent gainful activity. The SAC then elaborated in detail on the individual aspects of the activity. It concluded that while the independence of professional football players was limited, in some aspects it clearly defied the characteristics of dependent work under the Labour Code. Similarly, it was not “purely” an activity carried out in one’s own name and on one’s own responsibility. Anyway, according to the court, the applicable legal regulations allow the activity of professional athletes to be carried out as a trade, and in the given case, a proper trade licence had been obtained. The court thus did not consider it appropriate to force taxpayers to choose a manner of carrying out their business that would be more advantageous for the state. The SAC also accepted Lafata’s arguments regarding VAT registration: in the court’s opinion, the tax administrator thus implicitly confirmed that the taxpayer’s activity had been carried out independently, in his own name and on his own responsibility.

After reversing the lower court’s judgment and the tax administrator’s previous rulings, the matter has now been remanded to the Appellate Financial Directorate. In the meantime, the tax administration has issued a statement to the effect that it will align its practice in the taxation of team athletes’ income with this judgement. Affected athletes – traders may assert their claims by means of additional tax returns.