Formula 1 faces tax dispute over driver compensation in Italy

A tax dispute has emerged in Formula 1 regarding the taxation of driver compensation during races held in Italy. Following comments by driver Valtteri Bottas, the Italian Revenue Agency (Agenzia delle Entrate) has reportedly initiated inquiries into foreign racing teams.

The agency’s interpretation suggests that drivers should be classified as self-employed workers and that non-resident teams act as their clients. Consequently, these teams would be required to act as tax withholding agents, deducting a 30% tax on earnings related to activities performed within Italy. This regulation does not affect Scuderia Ferrari, as the team is a resident entity.

Tax experts have raised questions regarding whether the presence of a foreign team for a Grand Prix constitutes a ‘permanent establishment’ (stabile organizzazione). Under previous rulings, such as a 2021 clarification, non-resident companies without a permanent establishment in Italy were not required to apply withholding tax on self-employed income. The outcome of this debate depends on whether the teams' temporary presence meets the legal criteria for such an establishment.