On 28 September 2016, the Commission published the
non-confidential version of its negative Decision and recovery order regarding the preferential
corporate tax treatment of Real Madrid, Athletic Bilbao, Osasuna and FC
Barcelona. It is the second-to-last publication of the Commission’s Decisions
concerning State aid granted to professional football clubs, all announced on 4 July of this year.
Contrary to the other “State aid in football” cases, this Decision concerns
State aid and taxation, a very hot topic in
today’s State aid landscape. Obviously, this Decision will not have the same
impact as other prominent tax decisions, such as the ones concerning Starbucks and Apple.
This case dates back to November 2009, when a representative
of a number of investors specialised in the purchase of publicly listed shares,
and shareholders of a number of European football clubs drew the attention of
the Commission to a possible preferential corporate tax treatment of the four
mentioned Spanish clubs. The preferential tax treatment derived directly from a Spanish sports law of 1990, which obliged all Spanish professional sport clubs
to convert into sport limited companies. The justification for the measure was
that many clubs had been managed badly because neither their members nor their administrators
bore any financial liability for economic losses. This law exempted from this duty
to convert those football clubs which had a positive balance in the preceding
4-5 years. The only clubs who at that moment fulfilled these conditions were Real
Madrid, Athletic Bilbao, Osasuna and FC Barcelona, and were consequently
permitted to remain associations. Sports associations are non-profit entities
and, as such, qualified for a partial corporate tax exemption under the Spanish
Corporate tax Law. Instead of paying tax for their commercial income at the
general rate of 30%, sport clubs were only required to pay tax at a rate of
25%. Moreover, Spain did not include a time period for a possible re-assessment
of the financial position of the sport limited companies. Thus, no professional
sporting entity has had its legal qualification modified since the original
assessment of 1990, irrespective of how the financial health of the entity
Intervention by the
The complaint was given a “high priority status” by
the European Commission
and the allegations of an unfair Spanish tax system were widely covered in the
press (see for example here and here).
Nevertheless, it took the Commission more than four years to launch a formal investigation
and nearly seven to reach a final decision. In fact, there are reasons to
believe that the Commission’s delay in investigating the matter was only halted
after an intervention by the European Ombudsman. As stated above, the complaint was submitted in
November 2011. More than 25 months later, and not having been informed about
the progress of the case, the complainant turned to the Ombudsman. According to
the complainant, the Commission had failed to decide, in a timely way, whether
or not to open the formal investigation procedure. The Ombudsman agreed with
the complainant and found that the Commission had not justified its failure to
decide on the matter. Furthermore, the public suspicion that the Commission’s inaction
might be linked to the fact that the then Commissioner for Competition, Joaquín
Almunia, was a socio (member) of one of the football clubs (Athletic Club
Bilbao) involved, were highlighted by the Ombudsman in its Recommendation.
Even though the Commission has denied that the
delay in launching the formal investigation was linked to Almunia’s personal
footballing preferences, on 18 December 2013 (a mere two days after receiving
the Ombudsman’s recommendation) the Commission decided to open an in-depth investigation into the tax privileges granted to the four Spanish
As is the case with most, if not all, State aid and
tax cases, the key question is whether the tax measure (or treatment in this
case) leads to a selective economic advantage for one or more undertakings, in
this case the four professional football clubs.
In order to uncover a selective advantage in the form of tax income, the
case-law subscribes that one begins by identifying and examining the common
regime/system applicable in the Member State concerned. Secondly, an assessment
is made of whether the treatment derogates from that common system. This
assessment includes deciphering the objective assigned to the tax system, as
well as determining whether the economic operators in question (i.e. the four
football clubs) are in a comparable factual and legal situation to the other
economic operators falling under the common system.
If the four clubs are in a comparable factual and legal situation, but their
tax treatment derogates from the common system, this treatment will be
considered selectively advantageous. Third and lastly, it is necessary to
appraise whether the tax treatment is justified by the logic and nature of the
tax system. As
regards this justification appraisal, there are two important aspects to note:
First of all, there is a shift in the burden of proof, since it is for the
Member State which has introduced such a differentiation in charges in favour
of certain undertakings active in professional football to show that it is actually
justified by the nature and general scheme of the system in question.
Secondly, this justification appraisal has to be separated from the general
justification appraisal of Article 107(3), the latter of which will only take
place after State aid in the sense of Article 107(1) is fully established.
common system applicable and the objective assigned to the system
In both the Decision to open a formal investigation
and the final Decision, the Commission considered that the common system
applicable is that of the corporate tax law. This has been the common system
since the professional sporting entities had to convert to limited companies in
1990. The Commission also held that the objective assigned to the system is generating
State revenues on the basis of company profits.
four clubs in a comparable factual and legal situation?
The Commission believes that Real Madrid, Athletic
Club Bilbao, Osasuna and FC Barcelona are in a comparable factual and legal
situation as other professional sport companies in light of the abovementioned
objective of the tax system, and cannot see how they should be treated differently.
Nonetheless, Spain and the clubs argued that the clubs were not in the same
factual and legal situation, because the clubs’ aim was not to make profits. Instead,
all profits made have to be reinvested in the club itself. They also claimed
that the CJEU’s case law allows for exceptions “in light of the peculiarities
of cooperative societies which have to conform to particular operating
principles”. Indeed, “those undertakings cannot be regarded as being in a
comparable factual and legal situation to that of commercial companies,
provided that they act in the economic interest of their members, the members
being actively involved in the running of the business and entitled to
equitable distribution of the results of economic performance”.
The fact that clubs cannot distribute profits to shareholders is a relevant
peculiarity in the eyes of Spain.
The Commission rebutted Spain’s claim that sport
associations and sport limited companies are not in the same factual and legal
situation. It firstly criticised Spain’s obligatory
conversion of all-but-four sport associations into sport limited companies in
1990 by highlighting that “differences in the economic performance cannot
justify different treatment as regards the obligatory form of organisation or
the lack of choice in that respect. Losses are not intrinsic to a certain form
of organisation. The business performance is therefore not an objective
criterion justifying different taxation bases or imposing certain forms of
incorporation for an indefinite period”.
Moreover, not being able to distribute profits to shareholders “cannot support
a lower taxation of certain football clubs when compared to other professional
sporting entities. (…) Those four clubs, although they are non-profit entities,
actively seek to make profit themselves”, in a comparable way to other professional
Indeed, “the fact that clubs are obliged to reinvest the income they realise
(…) does not weaken their competitive position, nor justifies a different, more
favourable, tax treatment with respect to other entities active in professional
sport. It rather drives them to improve their facilities”.
by the nature and logic of the tax system
As stated above, it is up to the Member State
concerned to argue why the different tax treatment is justified under the
general tax system. The Decision shows that Spain, the four clubs and La Liga (who was given interested party
status by the Commission) presented a variety of arguments that in their eyes
justified the different treatment. Three of these arguments were the followings:
1. Associations have stricter internal control mechanisms
than sporting limited companies;
2. Associations have fewer possibilities of access to the
capital market than sporting limited companies;
3. Associations are placed at a disadvantageous position under
UEFA’s Financial Fair Play rules
compared to sporting limited companies.
As regards the first justification brought forward, it
underlines the liability regime imposed on the management body of a sport association.
For example, a club’s management board “must provide a bank guarantee covering
15% of the club’s budgeted spending in order to guarantee any losses generated
during its term. In addition, management board members will be strictly liable,
in an unlimited manner, with their present and future personal assets, for any
losses generated that exceed this guaranteed amount.”
Nonetheless, the Commission held that this justification is at odds with the
rationale for the conversion of the other sport clubs to sport limited
companies in 1990, which was the fact that many clubs had been managed badly. “If
there was a need for certain clubs to be subject to stricter controls, the obligatory
transformation into a limited company would not be necessary to pursue the
purpose of that law.
Further, Spain’s claim that clubs have fewer
possibilities of access to the capital market cannot be seen as a justification
for deviating from the common tax system. Simply put, “if the
disadvantages of the clubs in this respect are as
manifest as [Spain and the clubs] assert, they always have the possibility to
change their corporate form”.
Last, the Commission considers the Financial Fair Play
rules of the UEFA to be “internal rules set by a football organisation which
aim to ensure a reasonable financial management of sport entities and to avoid
continuous loss making. They cannot justify a different taxation of profits by
the State”. With
this last consideration, the Commission displays a rather benevolent attitude towards
UEFA’s Financial Fair Play Rules. Indeed, refusing to attack these rules in any
way is very much in line with its previous public statements on FFP, such as the
Commission’s and UEFA’s Joint
Statement on FFP of March 2012 and the Cooperation
Agreement between the Commission and UEFA of October 2014.
assessment under Article 107(3)
As can be read from paragraph 85 of the Decision, neither Spain nor the
beneficiaries have claimed that any of the exceptions provided for in Article
107(2) and 107(3) TFEU apply in the present case. Generally speaking,
successful justifications under Articles 107(2) and (3) are uncommon in State
aid and taxation cases. Two possible reasons for this can be deciphered: On the
one hand, Member State and interested parties seek justifications by the nature
and logic of the tax system, i.e. they argue that the justification rules out a
selective advantage for one more undertakings, thereby ruling out State aid under
Article 107(1). On the other hand, State aid through tax advantages are in most
cases considered as operating aid. Operating aid can normally not be considered
compatible with the internal market under Article 107(3) TFEU in that it does
not facilitate the development of certain activities or of certain economic
areas, nor are the tax incentives in question limited in time, digressive or
proportionate to what is necessary to remedy to a specific economic handicap of
the areas concerned.
In the preferential corporate tax
treatment of four Spanish football clubs case, the Commission noted that a
lower tax burden than one that should normally be borne by the clubs in the course
of their business operations, should be considered as operating aid.
Hence, this type of aid cannot be considered compatible aid under any of the
exceptions of Article 107(3).
Yet, the tax
benefit scheme in the Hungarian sport sector decision of 2011 provides an example of a tax benefit
scheme for the sport sector that is declared compatible State aid under Article
107(3)c) TFEU. In this case, the Commission held that the scheme was introduced
in a sufficiently transparent and proportionate manner, i.e. that the measure
was well-designed to fulfil the objective of developing the country’s sport sector.
Moreover, the Commission acknowledged the special characteristics of sport and
held that the objective of the scheme is in line with the overall objectives of
sport as stipulated in Article 165 TFEU, namely that the EU “shall
contribute to the promotion of European sporting issues”, because the sport
sector “has enormous potential for bringing the citizens of Europe together,
reaching out to all, regardless of age or social origin”.
As regards the preferential corporate tax treatment of
four Spanish football clubs case, no reference was made by Spain or
the interested parties to Article 165, or how the preferential tax treatment
could contribute to the promotion of sporting issues or values. Perhaps Spain
and the four clubs were aware that such a justification would not fly, since
the preferential tax treatment is only beneficial to four football clubs and
not to the sports sector in general.
Recovery of the aid
Given that the Commission considered the preferential tax treatment to
be unjustifiable State aid, a recovery decision was adopted. According to the
Commission, the amount of the aid to be recovered from the four football clubs
consists of the difference between the amount of corporate tax which the clubs
actually paid and the amount of corporate tax which would have been due under
the general corporate regime starting from the year 2000. The
Commission further recalls that the exact amount of the aid to be recovered will
be assessed on a case by case basis during the recovery proceeding which will
be carried out by the Spanish authorities in close cooperation with the
In this regard, it is important to mention that Spain amended the corporate tax rules in November 2014 and
new rules entered into force on 1 January 2015.
Under the amended law, the corporate income tax rate of 30% for all limited companies will be reduced to
28% for 2015 and to 25% from 2016 onwards. This includes limited sport
companies as well, which will, from 2016, be submitted to that 25% corporate
In other words, since there is no longer a different tax treatment for associations
compared to sport limited companies as of 2016, Spain has seized to grant
(unlawful) State aid to the four professional football clubs. The recovery will
thus only involve the advantages obtained until the end of 2015.
Few will disagree with the Commission in that the
Spanish corporate tax system allowed for an economic selective advantage to be
granted to Real Madrid, Athletic Club Bilbao, Osasuna and FC Barcelona over
more than 25 years, and without the presence of an acceptable justification for
such a favourable treatment. Having said this, this particular “saga” has not
quite ended after it became clear that Athletic Club de Bilbao (at least) appealed the
Commission’s Decision in front of the General Court of the EU.
Notwithstanding the upcoming Court case, the practical
impact of this Decision will probably be very limited. Firstly, the actual aid
that needs to be recovered by Spain will be relatively low in financial terms.
As can be read in the Commission’s press release of 4 July 2016, it is
estimated that the amounts that need to be recovered are around €0-5 million
The Spanish government is yet to announce how much it will recover, but Real
Madrid and FC Barcelona in particular will have no difficulties returning the
aid, irrespective of what the amount exactly is. Secondly, by lowering the
corporate tax rate for all limited companies in 2015 and 2016, Spain cannot be
considered anymore as granting State aid to its professional football associations
based on the corporate tax system. This also means that there is no more reason
to believe that the European Commission could “force” the four clubs to change
their legal status from club to sport limited company through the enforcement
of EU State aid rules, as some have insinuated. The fans of these clubs were dreading this outcome
because becoming a sport limited company would open the doors to external
investors, who would not necessarily in their eyes have the best interest of
the clubs in mind.
 The Commission has
previously published: Commission Decision of 4 July 2016, SA.41613 on the
measure implemented by the Netherlands with regard to the professional football
club PSV in Eindhoven; Commission Decision of 4 July 2016, SA.40168 on
the State aid implemented by the Netherlands
favour of the professional football club Willem II in Tilburg; Commission Decision
of 4 July 2016, SA.41612 on the State aid implemented
by the Netherlands in favour of the professional football club MVV in
Maastricht; Commission Decision
of 4 July 2016, SA.41614 on the measures implemented
by the Netherlands in favour of the professional football club FC Den Bosch in
's-Hertogenbosch; Commission Decision of 4 July 2016, SA.41617 on the State aid implemented
by the Netherlands in favour of the professional football club NEC in Nijmegen; and Commission Decision
of 4 July 2016, SA.33754 on the State aid implemented by Spain for Real
Madrid CF. The last remaining
decision to be published is Commission Decision of 4 July 2016, SA.36387 Aid to Valencia
recommendation of 16 December 2013 of the European Ombudsman in the inquiry
into complaint 2521/2011/JF against the European Commission, points 1-3.
 Commission Decision
of 4 July 2016, SA.29769 on the
State Aid implemented by Spain for certain football clubs, paras. 5-9.
 Draft recommendation
of the European Ombudsman in the inquiry into complaint 2521/2011/JF against
the European Commission, point 13.
 “Rather than
allaying suspicions regarding a conflict of interests, and regarding
inappropriate influences on the decision making process, the Commission's
failures here have actually added to those suspicions”.
 Interestingly enough, on that same day, the Commission decided to open
an in-depth investigation into State guarantees in favour of three Spanish
football clubs in Valencia and land transfers by the Council of Madrid to Real
Madrid: Commission decision of 18 December 2013, SA.36387, Spain—Alleged aid in favour of three Valencia football clubs; Commission decision of 18 December 2013, SA.33754, Spain—Real Madrid CF.
 C Quigley, “European
State Aid Law and Policy”, Hart Publishing
(2015), pages 109-127.
 See for example
Joined Cases C-78/08 to C-80/08 Paint
Graphos and others ECLI:EU:C:2011:550, para. 49.
 Commission Decision
of 4 July 2016, SA.29769, para. 51.
 Commission Decision
of 4 July 2016, SA.29769, para. 59. See also Case T-211/05 Italian Republic v Commission ECLI:EU:T:2009:304, para. 125.
 Commission decision of 18 December 2013, SA.29769, Spain—State aid to certain Spanish professional football
clubs, para. 16; and Commission Decision of 4
July 2016, SA.29769, para. 53.
 Commission Decision of 4 July 2016, SA.29769, para. 62; and joined Cases C-78/08
to C-80/08 Paint Graphos and others
ECLI:EU:C:2011:550, para. 61.
 Commission Decision of 4 July 2016, SA.29769, para. 56.
 Ibid, para. 65
 Ibid, para. 67.
 Ibid, para. 24.
 Ibid, para. 61.
 Ibid, para. 68.
 Ibid, para. 71.
 See for example Commission
Decision of 10 October 2015, SA.38374 on State
aid implemented by the Netherlands to Starbucks, para. 433.
 Commission Decision of 4 July 2016, SA.29769, para. 86.
Decision of 9 November 2011, SA.31722 – Hungary -
Supporting the Hungarian sport sector via tax benefit scheme., paras 95-98.
 Ibid, paras 86-87. For more information on the
tax benefit scheme in the Hungarian sport
sector decision, see O. van Maren, “The EU
State aid and Sport Saga: Hungary’s tax benefit scheme revisited? (Part 1)”, Asser International Sports Law Blog, 18
 According to Article 17(1) of the State Aid Procedural Regulation 2015/1589, the powers of the Commission to recover aid are
subject to a limitation period of ten years. Since the Commission asked Spain
for information for the first time in 2010, the recovery of the tax difference
starts with the taxation year 2000.
 Commission Decision of 4 July 2016, SA.29769, paras. 93-97.
 Ley 27/2014 de 27 noviembre 2014, del Impuesto sobre
Sociedades, BOE of 28
November 2014. Article 29(1) stipulates that “El tipo general de gravamen para los contribuyentes de este Impuesto será
el 25 por ciento”.
 Commission Decision of 4 July 2016, SA.29769, para. 34.
 European Commission
- Press release IP/16/2401 of 4 July 2016, State aid: Commission
decides Spanish professional football clubs have to pay back incompatible aid.