EU Court Nixes Tax Ruling Against Spanish Soccer Clubs

(CN) - Considered the best soccer club in the world, F.C. Barcelona persuaded the European General Court on Tuesday to annul a finding that Spain’s tax scheme benefitted it unfairly.

Though a copy of the ruling is not available in English, the Luxembourg-based court explained in a press release that all of Spain’s professional football clubs had been required since 1990 to convert to sports public limited companies, known as SPLCs, to limit corruption.

The law carved out an exception, however, for “clubs that had achieved a positive result for the tax years preceding the adoption of the law.”

Four such clubs — F.C. Barcelona, Real Madrid, Athletic Bilbao and Atletico Osasuna — all chose to continue as clubs, thus paying an income tax rate that was, until 2016, lower than the rate applied to SPLCs. 

It was in 2016 that the European Commission ordered Spain to discontinue the scheme and immediately make the clubs pay back what it deemed to be unlawfully granted state aid.

Annulling that decision Tuesday, the General Court emphasized that the commission, when it adopted its decision, was “in possession of evidence highlighting the specific nature of the sector as regards tax deductions, which should have led to its having doubts as to whether its findings — all sectors included — on the effective taxation of non-profit entities and entities subject to the general tax regime, respectively, could be applied to that sector.”

The press release emphasizes that the commission cannot dissociate its examination of how the scheme advantaged clubs “from that of the other components of the tax regime of nonprofit organizations.”

To this end, Real Madrid showed that the tax deduction to reinvest extraordinary profits was higher for SPLCs than for nonprofit entities.

“The Madrid club claimed that that deduction was potentially very significant due to the practice of player transfers, as profits could be reinvested in the purchase of new players and that the tax regime applicable to nonprofit organizations had thus been, between 2000 and 2013, ‘significantly more disadvantageous’ to it than that applicable to SPLCs,” the press release states.

For its part, the commission provided a study to demonstrate “that, for most of the tax years, the effective taxation of professional football clubs as non-profit organizations was lower than that of comparable entities under the general tax regime,” according to the press release.

“However, the figures related to aggregate data, all sectors and operators included, and related to only four tax years, whereas the period concerned by the regime at issue ran from 1990 to 2015,” the press release continues. “The court finds that the Commission erred in its assessment of the facts. … The court observed that those data should have been examined in the light of the other factual evidence submitted to the commission, like the statements submitted by the Real Madrid Club de Futbol concerning the importance of the tax deductions for professional football clubs, connected to player transfers.”

The press release notes that F.C. Barcelona and Athletic Bilbao brought the underlying action, but that Bilbao’s case has been dismissed.

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