Athletes, Artists and Licensing Structures – The Tax Classification of Appearance Income and Royalty Income
The international taxation of athletes, artists and other high-profile individuals offers scope for structuring, particularly in separating personal appearance and performance income, on the one hand, from income derived from the exploitation of intangible rights — especially image rights — on the other. At the same time, practice and case law make one point unmistakably clear: only arrangements that are substantively justified, carefully documented and valued on an arm’s length basis will withstand tax scrutiny.
1. Starting point: appearance fees and licence fees are not the same for tax purposes
International elite athletes, artists and other high-profile individuals often derive their income from two clearly distinguishable sources:
- personal appearance and performance income (e.g. competitions, concerts, shows and promotional appearances); and
- income from the exploitation of intangible rights, in particular from the licensing of names, images, voices, trade marks and other image rights.
This distinction is not only commercially relevant; it is of decisive importance for tax purposes. Depending on the classification, different distributive rules under double taxation agreements (DTAs) apply, sometimes resulting in significant differences in the overall international tax burden.
2. DTA classification: Article 17 vs. Article 12 of the OECD Model Tax Convention
The OECD Model Tax Convention (OECD MTC) (2017 version, updated in 2025) allocates taxing rights as follows:
- Article 17 OECD MTC (Entertainers and Sportspersons)Income derived from the personal exercise of artistic or sporting activities may be taxed in the state in which the activities are performed (source state), irrespective of whether it accrues directly to the artiste or sportsperson or to an interposed entity.
- Article 12 OECD MTC (Royalties)
Consideration paid for the use of, or the right to use, copyrights, image rights or other intangible assets is, under the OECD Model, generally taxable only in the state of residence of the beneficial owner. In practice, however, the specific DTA in question is always decisive: many treaties contain deviating provisions, limited source-state taxation rights or additional requirements, particularly in relation to beneficial ownership.
It is precisely in the case of mixed agreements — for example sponsorship, endorsement or umbrella agreements covering both personal performance obligations and the use of intangible rights — that the crucial delineation issue arises as to which element of income falls under which DTA provision.
3. Separating performance from licensing: legally possible, but demanding
International practice shows that a contractual and economic separation between personal performance and the exploitation of rights is, in principle, permissible. For tax purposes, however, such separation will be recognised only if it is structured in a substantive, comprehensible and arm’s length manner.
Where such separation is absent, or exists only in the form of purely formal contractual wording, tax authorities tend to treat the entire remuneration as falling within Article 17 OECD MTC, with the consequence that taxation arises in the state of performance.
What is decisive is not merely the wording of the contract, but in particular:
- the actual implementation of the arrangements;
- the economic substance of the licensing structure;
- a robust valuation and allocation of the remuneration; and
- consistent and comprehensible documentation.
These criteria correspond to the typical lines of enquiry adopted by many tax authorities and courts.
4. International case law and administrative practice: practical guideposts
Case law — particularly from the United States, as well as from the United Kingdom and continental Europe — provides important guidance:
- Garcia v. Commissioner (US Tax Court, 2013)
The professional golfer Sergio Garcia contractually split his endorsement income with equipment supplier TaylorMade between personal performance and licence payments (originally 85 per cent licence / 15 per cent performance). While the tax authority sought to classify the entire amount as performance income, the court undertook its own economic allocation and held that 65 per cent constituted licence or royalty income. Under the applicable DTA (United States–Switzerland), this portion was not subject to US taxation, but allocated instead to the state of residence. - Retief Goosen (US Tax Court, 2011)
In the case of South African professional golfer Retief Goosen — whose global profile was comparatively less pronounced — the courts likewise accepted a split between performance income and licence income. In the absence of complete documentation and precise delineation, a 50/50 allocation was considered appropriate, in part by way of judicial estimation. The case illustrates that courts do accept licensing models, but will intervene where the allocation is not sufficiently substantiated. - United Kingdom (HMRC practice)
In the UK, so-called image rights structures have for many years been the subject of close scrutiny by HM Revenue & Customs. Licence payments are recognised for tax purposes only where they are commercially justified, valued on an arm’s length basis and genuinely implemented in practice. Excessive licence components, or arrangements lacking substance, are regularly recharacterised as employment income or personal performance income.
These examples show that licensing models are recognised internationally, but are subject to heightened scrutiny.
5. Liechtenstein as a jurisdiction for licensing and structuring models
5. Liechtenstein as a jurisdiction for licensing and structuring models
From a structuring perspective, Liechtenstein offers an attractive, yet clearly regulated, framework:
- a uniform corporate income tax rate of 12.5 per cent at the level of the legal entity;
- no withholding tax on outbound royalty payments under Liechtenstein law;
- a solid DTA network, which may, depending on the circumstances, enable tax relief for foreign-source royalty income; and
- a high degree of legal certainty, stability and international acceptance.
In practice, image rights and other intangible rights are often transferred — where legally permissible — into separate companies or foundations and licensed from there. Particular care must be taken to ensure:
- a clean and defensible chain of title;
- the clear distinction between personality rights (which are not freely transferable in every legal system) and trade mark or copyright-related rights that may be licensed; and
- an arm’s length valuation of the contributed rights and of the ongoing royalty rates.
Practical box: when will a royalty component be recognised for tax purposes?
A robust structure should, in particular, satisfy the following criteria:
- clear contractual and factual separation between personal appearance and performance income, on the one hand, and income from the exploitation of intangible rights (in particular image rights), on the other;
- demonstrably arm’s length allocation of income (for example through benchmarking or expert opinions);
- legally documented and attributable IP rights (for example trade mark registrations, defined scope of use and territorial limitations);
- separate accounting systems and clearly traceable payment flows;
- demonstrable economic substance at the level of the IP holding entity (organisation, decision-making and control functions); and
- consistent and coherent tax reporting in all affected jurisdictions.
6. Conclusion: scope for structuring, with responsibility
The international taxation of athletes, artists and other high-profile individuals offers scope for structuring, particularly in separating personal appearance and performance income, on the one hand, from income derived from the exploitation of intangible rights — especially image rights — on the other.
At the same time, practice and case law make one point unmistakably clear: only arrangements that are substantively justified, carefully documented and valued on an arm’s length basis will withstand tax scrutiny.
FS+P AG advises clients, together with selected network partners, on tax structuring and classification, as well as on the drafting of contracts and supporting documentation in connection with IP/licensing, corporate and foundation structures in Liechtenstein. This also includes the implementation of such structures and their ongoing tax support.