Valentino Rossi's Tax Travails - An Example In The Making?

News emerged today that the Italian tax authorities are investigating Valentino Rossi for tax evasion over some 60 million euros over the period between 2000 and 2004. The tax evasion stems from the authorities' claim that although Valentino Rossi was living in London at the time, he was merely resident there, and not domiciled for tax purposes, making Rossi liable for Italian income tax.

The question of domicile versus residence as far as the tax authorities are concerned is always a highly fraught and convoluted problem, with varying demands made on the number of days a person needs to be present in the country, a requirement made even more complex for people whose professions constantly drag them halfway round the world, such as motorcycle racers.

Rossi's decision to base himself in London is itself an interesting choice. The United Kingdom is not known for its extraordinarily low taxes, with the top level of income tax set at 40%, although this rate is considerably lower than other European countries, so moving to London would not appear to offer Rossi too much in terms of tax advantages. The favored locations for motorcycle racers earning generous incomes tend to be the smaller states with very generous tax regimes: Troy Bayliss lives in Monaco, as did Jurgen van den Goorbergh when he was still active in the Grand Prix circus; James Toseland and Neil Hodgson live on the Isle of Man, while Garry McCoy lives in Andorra, along with a handful of Spanish and French rally legends. These locations also offer excellent access to outstanding off-road riding areas and good cycling territory, a requirement for keeping in the outstanding shape demanded by the very highest levels of motorcycle competition.

The Italian authorities decision to go after Rossi could herald the start of a domestic crackdown on tax evasion. The Italian government struggles hugely with tax evasion, which has become a bit of a national sport. Prime Minister Prodi's plans to reform Italy's creaking social security system and ramshackle public finances are based to a significant extent on cracking down on tax evasion, and Mr Prodi has even gone so far as to appeal to the Catholic Church to impress upon their parishioners that tax evasion is a serious crime, despite Prodi's previous vociferous commitment to the separation of church and state. Consequently, a series of high-profile tax evasion charges, filed against some of Italy's biggest names, could be the start of a national campaign to persuade the general public to pay their way as well. It's conceivable that Valentino Rossi is merely the first name in a long and famous list.

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