Ronaldo’s big Italian tax break – but does Trickle-down economics really work?

When Italy’s Fiat-affiliated Juventus soccer team snapped up star Cristiano Ronaldo in July for a whopping $34 million a year–net–it made big headlines.

Italy’s unveiling of an attractive new tax regime last year to lure rich foreigners to the country also captured the attention of the press– but certainly not on the same scale.

There were no reports of any high rollers taking the tax break bait until Ronaldo’s signing with Juventus. Whether or not the new tax rules played a role in his decision remains a question only he knows the answer to, but it is a clear example of the ways in which this regime can further enrich the rich, and the Italian press has been all over it.

The way the new tax regime works is that Italian-sourced income is taxed at the regular rate of 43 percent.  But any outside earnings are only subject to a flat tax of 100,000 euros or about $117,000. That is not chump change, but if you earn $47 million a year in endorsements around the world, as Ronaldo is said to do, it beats paying tens of millions in tax in Italy.

News U.S. Today asked Milan-based tax lawyer Francesco Nobili if Italians resent what could be seen as preferential treatment for foreigners in Italy and he said no, pointing to the example of Ronaldo.  “He is a new resident and can pay new taxes.  If these kind of people come to Italy then these people can make new investments in Italy.”

Italy’s notorious bureaucracy, rigid labor laws and slow-moving wheels of justice prevent it from being a mecca for investors and this new wealth tax break is one step toward revamping the country’s image around the world, at least as a fiscal draw.

Rome has also created a “return of the brains” tax break for those who have moved abroad and want to repatriate. It is meant to reverse the brain drain of recent years. It also applies to skilled foreigners who decide to settle in Italy. Under this regime, roughly, Italians who have been abroad for nine of the past ten years, as well as newcomers, will only be taxed on fifty percent of their earnings.

But back to Ronaldo, he ran into some tax trouble in Spain, where he played for Real Madrid. Tax authorities there accuse him of fraud, which he denies but he will have to pay a $22 million penalty. So the break from Italy will come in handy.

And then there is the eternal question of whether star athletes merit such eye-popping salaries. Some Fiat workers were so outraged when they learned of Ronaldo’s deal that they threatened to strike. That never really got off the ground.

Juventus’ owners are counting on quite a windfall from his acquisition. Ronaldo played his first real match for Juventus on Saturday. He didn’t score a goal. But he is one of the most popular figures on the planet with over three hundred million followers on social media.  And in the first twenty-four hours after his signing with Juventus, the team sold 520,000 Ronaldo t-shirts worth $119 each.  So Juventus is planning to cash right in on Ronaldo.

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