Introduction: Why tax and criminal law risks in sport are underestimated
Sports clubs and associations make an indispensable contribution to society – from grassroots sport to international competition. Behind the sporting façade, however, lie tax and criminal law pitfalls that boards, executive committees and officials often fail to recognise at all or underestimate. Whether it concerns undeclared payments to players, the correct distinction of expense allowances, the use of public funding or the structuring of sponsorship agreements: the financial and legal consequences can threaten a club’s very existence.
This article takes a practical look at the risks that exist, how they can be identified and the solutions offered by KINDL.trusted as a law firm specialising in criminal law, tax law and forensic accounting.
Undeclared payments to athletes – an underestimated risk
Undeclared payments – often referred to in sporting jargon as “Handgeld” (cash in hand) – are said to be widespread among Austrian clubs. These are payments to players that are channelled past the tax office and the social insurance authorities. Such practices not only give rise to back taxes but can also entail consequences under financial criminal law and thus, in extreme cases, criminal liability before the courts.
What happens if undeclared payments at a sports club are uncovered?
If undeclared payments are uncovered – for example in the course of a tax audit, through information from the Financial Police (Finanzpolizei) or through whistleblowing reports – the club and the responsible officials face substantial back payments of wage tax, employer contributions and social insurance contributions. In addition, financial criminal proceedings and criminal court proceedings may follow.
Case study: An amateur football club made undeclared payments to its players over an extended period, systematically exceeding the tax-free limit of the flat-rate expense allowance (PRAE) of € 720 per month. KINDL.trusted carried out the forensic review of the facts, calculated the wage tax and social insurance arrears and prepared a timely voluntary disclosure. The result: the club got away with a back payment – financial criminal proceedings and media attention were avoided entirely.
What are the consequences of organised undeclared work in sport?
The situation becomes particularly serious if the authorities suspect organised undeclared work. In such cases, the club faces not only sanctions under financial criminal law and trade law consequences up to and including the revocation of its trade licence. It may also constitute a criminal offence punishable by imprisonment of up to two years.
PRAE – correctly distinguishing expense allowances in sport
What is PRAE and who is entitled to receive it?
The flat-rate travel expense allowance (pauschale Reiseaufwandsentschädigung – PRAE) is a lump-sum payment exempt from tax and social insurance contributions for athletes and coaches who are active in the course of their sporting activities for non-profit sports clubs. The PRAE limit is currently € 720 per month. Crucially, however, the PRAE applies exclusively to persons acting in their capacity as athletes or coaches – not to officials, board members or presidents.
The correct distinction between a tax-free expense allowance and an employment relationship subject to social insurance and wage tax is one of the most common sources of error in Austrian club law. If the PRAE limit is exceeded or the expense allowance is paid to persons who are not entitled to it, wage tax and social insurance obligations arise – retroactively and with interest.
When does an expense allowance become an employment relationship?
As soon as the remuneration exceeds the PRAE limit or the activity displays the characteristics of a genuine employment relationship – such as being bound by instructions, integration into the club’s organisation and regular working hours – an employment relationship exists for tax and social insurance purposes. KINDL.trusted carries out tax risk analyses of remuneration models and supports clubs from advice through tax audits all the way to the Constitutional Court (VfGH) in order to create legal certainty.
Why is the PRAE trap also dangerous for officials?
Case study: The president of a sports association received unemployment (AMS) and pension benefits in addition to his expense allowances. In his case, however, the PRAE was not applicable, as he was not acting as an athlete or coach but as an official. The result: criminal law consequences. KINDL.trusted was nevertheless able to significantly reduce the amount of damage and obtain a lenient sentence as well as an instalment agreement with the social insurance authority.
Public funding and sponsorship money – when transparency is lacking
What risks arise from the misappropriation of public funding?
Sports clubs and associations frequently receive public funding that is tied to specific purposes. Using these funds for other purposes may result not only in the funding being reclaimed but also in criminal law consequences – in particular allegations of subsidy abuse or fraud. KINDL.trusted offers a forensic review of the use of funds by means of payment flow analysis in order to uncover irregularities and protect clubs vis-à-vis (potential) funding bodies.
How should sponsorship agreements be structured correctly for tax purposes?
Sponsorship agreements and the granting of advertising rights are subject to critical tax and legal scrutiny. Opaque contractual structures, invoicing without genuine consideration or excessive sponsorship amounts may be classified as hidden profit distributions, sham invoices or even as breach of trust or fraud.
Case study: A company acting as sponsor of a football club came under suspicion of having issued invoices without adequate consideration. KINDL.trusted analysed the accounting records, objectively determined the actual advertising value and prepared a voluntary disclosure. This protected the sponsor’s management from criminal law consequences.
KINDL.trusted carries out an objective assessment of contractual arrangements: with an appropriateness review, arm’s-length comparison and compliance check-ups, in order to establish a robust contractual basis and transparency vis-à-vis the board and executive committee.
Insolvency of a sports club – the criminal law dimension
What are the risks if a sports club becomes insolvent?
In addition to its economic consequences, the insolvency of a sports club often also raises civil and criminal law issues. These may include allegations such as delayed filing for insolvency or criminal offences such as fraudulent bankruptcy (betrügerische Krida), grossly negligent impairment of creditors’ interests and related offences.
Case study: A football club had to file for insolvency itself following the insolvency of its main sponsor. There was suspicion of improperly obtained sponsorship funds, delayed filing for insolvency and bankruptcy offences (Krida). KINDL.trusted was called in as accounting expert, determined the date of insolvency and calculated the damage to creditors – a decisive basis for the criminal law assessment.
Corruption and the award of sports and advertising rights
How is corruption in the award of advertising rights uncovered?
The award of TV, media and advertising rights in sport involves large sums of money and carries a considerable risk of corruption. Officials of international sports federations are at times suspected of having personally pocketed cash in connection with the award of such rights.
Case study: A president of an international sports federation was suspected of having personally pocketed cash in connection with the award of advertising rights. KINDL.trusted was called in as accounting expert, objectively determined the advertising value of the TV rights and carried out a comprehensive payment flow analysis in order to establish the facts forensically.
Creative remuneration structures for athletes – the limits of contractual freedom
Are licence payments for athletes’ personality rights subject to wage tax?
In practice, clubs and athletes sometimes attempt to process parts of the remuneration as licence payments for personality rights – for example image rights or name rights – via third parties. However, the tax authorities frequently regard such structures as remuneration subject to wage tax and demand back payments.
Case study: At one sports club, it was disputed whether licence payments made by a third party for the players’ personality rights constituted remuneration subject to wage tax. The additional claims amounted to a seven-figure sum. KINDL.trusted lodged a complaint with the Constitutional Court (VfGH), obtained annulment by the Supreme Administrative Court (VwGH) on the grounds of procedural errors and subsequently conducted negotiations with the tax office and the Austrian Health Insurance Fund (ÖGK) – a result that was only possible with comprehensive tax and legal expertise.
Search of club premises – what to do when there is a knock at the door?
What happens during a search of a sports club’s premises?
A search – whether by a public prosecutor’s office, such as the Central Public Prosecutor’s Office for Combating Economic Crimes and Corruption (WKStA), the Financial Police or other authorities – often catches a club unprepared. In these situations, search warrants are handed over, suspects and witnesses are questioned and data and documents are seized. Without professional preparation, the damage can be enormous – not only legally but also in terms of media coverage.
With its “Mock Dawn Raid”, KINDL.trusted offers a simulated search. Realistic scenarios are played through – from the handing over of the search warrant and the questioning of suspects and witnesses to the seizure of data. The team consists of former public prosecutors, tax auditors and experts who know exactly what the authorities look for and what they are permitted to do.
How can clubs and associations prepare for official investigations?
Preparation is the decisive factor. Anyone who knows in an emergency how to behave during a search, which rights exist and which data must be handed over can significantly limit the damage. KINDL.trusted supports clubs with training for executives and sports officials on avoiding liability as well as with the implementation of an effective internal control system (ICS).
Officials’ liability and compliance in sports clubs
When are officials personally liable?
Board members and members of the executive committee of sports clubs bear considerable personal responsibility. Inadequate supervision, flawed remuneration models or insufficient internal control systems may give rise to personal liability – under both civil and criminal law. Managing director and directors’ liability is particularly critical: officials may be held personally liable for the club’s tax debts.
Exemption from punishment through voluntary disclosure – acting in good time pays off
Voluntary disclosure (Selbstanzeige) is one of the most effective instruments in Austrian financial criminal law for obtaining exemption from punishment for a tax offence. The prerequisite is that the voluntary disclosure is made in good time – i.e. before the authority becomes aware of the offence – and in full. The taxes owed must be paid within the deadline set.
KINDL.trusted prepares voluntary disclosures on the basis of a forensic review of the facts and a precise calculation of the taxes to be paid. Experience shows: those who act in good time can obtain exemption from punishment, limit back payments and create a sustainable remuneration structure for the future.
When should a sports club seek professional support?
There are many reasons for calling in KINDL.trusted, which may be prompted both internally and externally:
Internal triggers
- Whistleblowing reports indicating irregularities
- Changes on the board or executive committee, combined with liability issues
- Irregularities in the accounts
External triggers
- Media reports or scandals concerning the club
- Official investigations: searches, witness interviews
- Tax audits, audits of payroll-related levies (PLB), customs or Financial Police
- § 50 StPO (Austrian Code of Criminal Procedure) – notification of suspects
- Court or arbitration proceedings
The added value of KINDL.trusted for sports clubs and associations
As a firm, KINDL.trusted combines three synergetic service areas under one roof: criminal defence lawyers, tax advisors and attorneys, and court-appointed experts. The motto: “Law, tax and the Commercial Code (UGB) sit at one table with us.” This means no loss at interfaces, no information gaps and a team that can examine every issue from several perspectives.
- One team instead of interfaces – criminal law, tax law and forensics from a single source
- Independence from the club’s accountant and auditor
- Robust findings of fact in days – not weeks or months
- Preparation instead of reaction – prevention as a core competence
- Confidentiality from minute one and discretion as the result
At KINDL.trusted, the expert handles the mandate – not a junior who first has to familiarise themselves with the matter. The team consists of lawyers, business economists, tax advisors, attorneys, court-appointed experts and forensic specialists. Its criminal defence work includes representing former ministers, managers, companies and sports officials – with the aim of having investigation proceedings discontinued and supported by experienced litigation PR.
Conclusion – act before the prosecutor blows the whistle
“Game-changing: identify tax risks before the prosecutor blows the whistle.” This guiding principle of KINDL.trusted sums it up. The tax and criminal law risks for sports clubs and associations in Austria are real and diverse. From undeclared payments and PRAE classification issues to sponsorship pitfalls and officials’ liability through to searches and insolvency scenarios – those who fail to act in good time risk substantial back payments, criminal proceedings and reputational damage.
The good news: with professional forensic review, timely voluntary disclosure and a well-thought-out compliance structure, most risks can be managed. KINDL.trusted is the specialised partner that supports sports clubs and associations in precisely these situations – discreetly, competently and with an interdisciplinary team covering all relevant areas of expertise.
Contact
Contact KINDL.trusted – your point of contact for tax and criminal law issues in sport:
Marlis Wenninger
Partnerin | Sachverständige
