Top Spanish Soccer Clubs May Get Tax Comeuppance in 2nd Half of Court Battle

Barcelona’s Lionel Messi looks down during the Spanish La Liga soccer match between Sevilla and FC Barcelona at the Ramon Sanchez-Pizjuan stadium in Seville, Spain, on June 19, 2020. (AP Photo/Angel Fernandez)

(CN) — A European magistrate urged more scrutiny Thursday on whether Spain’s tax laws unfairly benefit its top soccer clubs, which are among the world’s best and most profitable teams.

Advocate General Giovanni Pitruzzella made the call in a nonbinding opinion, as the European Court of Justice considers charges from the European Commission that Spain’s powerhouse teams F.C. Barcelona and Real Madrid benefit unfairly under a Spanish law that allows them to pay taxes as nonprofit sports clubs rather than sports companies. 

The European General Court ruled against the commission in February 2019, finding no proof that soccer clubs benefitted by paying taxes as nonprofits. 

Europe’s highest court’s, the Luxembourg-based Court of Justice, is now set to consider the commission’s appeal, with Pitruzzella’s opinion serving as legal guidance. 

The case goes back to a 1990 law meant to limit corruption and bad management by reclassifying Spain’s professional football clubs as sports public limited companies, known as SPLCs. An exception was included, however, for “clubs that had achieved a positive result for the tax years preceding the adoption of the law.”

Barcelona, Real Madrid, Athletic Bilbao and Atletico Osasuna qualified for that exception and opted not to convert from sports clubs to sports companies. 

But the European Commission, which serves as the European Union’s executive branch, ordered Spain to discontinue the scheme in 2016, alleging the clubs were paying an income tax rate that was lower than the rate applied to SPLCs. It also wanted the clubs to pay back what it deemed to be unlawfully granted state aid. 

Barcelona challenged the commission’s ruling at the General Court. Real Madrid and the Spanish government joined Barcelona against the commission. The Spanish government argued that EU oversight should not extend to a member state’s corporate tax regime. The football clubs argued they were not benefitting under the tax scheme. 

In siding with the teams last year, the General Court found that the commission lacked evidence that nonprofit clubs were benefiting from the tax regime when tax deductions and other factors were considered. 

Real Madrid had shown, for example, that the tax deduction to reinvest extraordinary profits was higher for SPLCs than for nonprofit entities. This tax deduction applies when players are transferred from one team to another. 

For its part, the commission provided a study showing that for most tax years the effective taxation of the sports clubs was lower than those classified as SPLCs. 

Pitruzzella said the commission fulfilled its obligation to show this special tax regime “is likely to place its beneficiaries in a more favourable financial position than that of the other relevant taxpayers.” 

He said determining the “quantification of the advantage” and “whether that advantage actually materialises in each tax year” should be calculated at “the recovery stage.” 

Courthouse News reporter Cain Burdeau is based in the European Union.

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