Italy and the United Kingdom are intensifying efforts to collect taxes from Formula 1 drivers and teams, but experts warn such actions could backfire and drive the sport away. Italy's latest crackdown, framed as an anti-evasion measure, appears more like a system struggling to adapt to the modern realities of Formula 1.
Retrospective Audits Raise Questions
Italian authorities are reportedly planning retrospective audits of teams and drivers for the period between 2020 and 2024, focusing on income linked to races held on Italian soil. However, this approach raises a fundamental question: if Formula 1 is one of the most scrutinized industries globally, with access to top-tier financial advisors, is it plausible that everyone has been consistently getting the tax rules wrong? It is more likely that the tax system itself is no longer fit for purpose.
Complexities of Global Taxation
International tax law for athletes and entertainers has always been complex, built on outdated OECD models from decades ago. These models were designed when income streams were simpler, costs lower, and the idea of a globalized sport with 24 races across multiple continents did not exist. Today, a Formula 1 driver is not just a competitor but a multinational corporation whose marketable assets rely on sporting ability, personality, background, lifestyle, and personal connections. The difficulty lies in how multiple jurisdictions assert taxing rights over overlapping slices of income, each applying its own rules on what is taxable and deductible, often favoring domestic interests.
For example, if a British driver paid by a Japanese sponsor posts on social media while in Italy, where is that income generated? Where should it be taxed? How do you apportion the costs? There is no clean answer. Tax authorities are applying legacy rules to a commercial reality that has moved on. When Italy retrospectively reassesses four years of activity, it is not addressing tax evasion but exposing the limitations of its own framework.
Retroactive Enforcement Counterproductive
Rewriting the interpretation of rules after the fact is counterproductive. Retroactive enforcement sends a message that the rules of the game are unstable, which could deter teams and investors. Formula 1 is a global sport with options: circuits compete for races, and jurisdictions compete for talent. If operating in a country becomes administratively burdensome and legally uncertain, teams may go elsewhere.
In the UK, HMRC has taken an increasingly granular approach to F1 taxation, pushing into areas that blur the line between legitimate oversight and personal privacy. The return on such enforcement is marginal, but the signal it sends is clear. Governments are under pressure to generate revenue, but the industries they target are highly mobile.
Need for Modernization
Italy has spent years offering favorable tax treatment to attract high-net-worth individuals, so it is not surprising that authorities now seek to claw back revenue. However, Formula 1 operates across 24 races with multiple jurisdictions and overlapping commercial structures. Even the most experienced advisers encounter areas of ambiguity. It is difficult to accept that the entire F1 industry, supported by specialized advisors, has collectively misunderstood the rules.
If Italy wants to maximize revenue and improve compliance, the solution is modernization: aligning tax policy with how the sport actually operates today. Otherwise, this becomes an expensive exercise in chasing the wrong problem. Oriana Morrison is the founder of tax advisory ECNMX.
