Preferential tax treatment is illegal public aid, even FC Barcelona will feel it

The Court of Justice of the EU (CJEU) has finally closed a long-standing dispute over the preferential tax treatment of the largest football clubs in Spain. The conclusion is unforgiving: FC Barcelona, FC Real Madrid and other clubs will have to pay back millions of euros to the Spanish financial administration, because the tax treatment adopted in the 1990s was found to constitute illegal public aid.

In 1990, Spain passed a law obliging all Spanish professional sports clubs to change their legal form to sports joint stock companies. However, this obligation did not apply to clubs that had reported profit in previous years. These were: FC Barcelona, FC Real Madrid, Athletic Club (Bilbao) and Club Atlético Osasuna (Pamplona). These apparently well-managed clubs were thus able to continue operating as non-profit organisations, therefore applying a special income tax rate, which until 2016 was five percent lower than that for sports joint stock companies. As a result, these clubs saved several million of euros in income taxes.

In 2016, following an extensive investigation into aid granted to Spanish football clubs, the European Commission decided that the tax treatment applied for almost 30 years conferred an advantage on the above clubs and constituted illegal public aid. However, the EU General Court subsequently annulled the Commission’s decision. The case was finally closed this month by the CJEU, which sided with the European Commission.

In Judgment C-362/19 P, the CJEU stated that, in the case of aid schemes, a distinction must be made between the aid scheme itself and the individual aid granted under that scheme. In the present case, all professional sports clubs that fulfilled the conditions could benefit from the preferential tax treatment. Such a tax measure therefore constituted illegal aid, even though only a few football clubs actually benefited from the lower tax rate and it was not possible to determine in advance the exact amount of aid granted. Therefore, the assessment of whether an unlawful advantage is being conferred on the clubs for the purposes of Article 107(1) of the Treaty on the Functioning of the EU (TFEU) should have been made at the time of adopting the aid scheme – the relevant law (ex ante), rather than ex post, depending on the claiming, if any, of tax deductions, reliefs or other variable facts that may subsequently neutralise the advantage previously granted.

According to the CJEU, the tax treatment adopted by Spain in the 1990s conferred an unjustified advantage on FC Barcelona, FC Real Madrid, Athletic Club (Bilbao) and Club Atlético Osasuna (Pamplona) over other competitors. Those football clubs will therefore have to repay the illegally granted public aid, which in practice means paying tax arrears over the last 10 years, including interest.

Although the amounts to be recovered reach millions of euros, which is a negligible figure in terms of the clubs’ value (for information: Lionel Messi's current market value is EUR 80 million, and that of FC Barcelona's A-team is even 10 times higher), the CJEU's decision may be critical, given the current coronavirus pandemic. All the more so for the financially decimated FC Barcelona...

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