Asser International Sports Law Blog

Our International Sports Law Diary
The Asser International Sports Law Centre is part of the T.M.C. Asser Instituut

New Video! Zoom In on World Anti-Doping Agency v. Russian Anti-Doping Agency - 25 February

Dear readers,

If you missed it (or wish to re-watch it), the video of our third Zoom In webinar from 25 February on the CAS award in the World Anti-Doping Agency v. Russian Anti-Doping Agency case is available on the YouTube channel of the Asser Institute:



Stay tuned and watch this space, the announcement for the next Zoom In webinar, which will take place on 31 March, is coming soon!

New Event! Zoom In on World Anti-Doping Agency v. Russian Anti-Doping Agency - 25 February - 16:00-17:30 CET

On Thursday 25 February 2021 from 16.00-17.30 CET, the Asser International Sports Law Centre, in collaboration with Dr Marjolaine Viret (University of Lausanne), organizes a Zoom In webinar on the recent award of the Court of Arbitration for Sport (CAS) in the case World Anti-Doping Agency (WADA) v. Russian Anti-Doping Agency (RUSADA), delivered on 17 December 2020.


Background
In its 186 pages decision the CAS concluded that RUSADA was non-compliant with the World Anti-Doping Code (WADC) in connection with its failure to procure the delivery of the authentic LIMS data (Laboratory Information Management System) and underlying analytical data of the former Moscow Laboratory to WADA. However, the CAS panel did not endorse the entire range of measures sought by WADA to sanction this non-compliance. It also reduced the time frame of their application from four to two years. The award has been subjected to a lot of public attention and criticisms, and some have expressed the view that Russia benefited from a lenient treatment.   

This edition of our Zoom in webinars will focus on assessing the impact of the award on the world anti-doping system. More specifically, we will touch upon the decision’s effect on the capacity of WADA to police institutionalized doping systems put in place by certain states, the ruling’s regard for the rights of athletes (Russian or not), and its effect on the credibility of the world anti-doping system in the eyes of the general public.


To discuss the case with us, we are very happy to welcome the following speakers:


Participation is free, register HERE.

Anti-Doping in Times of COVID-19: A Difficult Balancing Exercise for WADA - By Marjolaine Viret

Editor's note: Marjolaine is a researcher and attorney admitted to the Geneva bar (Switzerland) who specialises in sports and life sciences.


I.               Introduction

The COVID-19 pandemic has shaken the manner in which we approach human interactions that suppose close and prolonged physical contact. Across the world, authorities are having to design ways to resume essential activities without jeopardising participants’ health, all the while guaranteeing that other fundamental rights are paid due respect. The fight against doping is no exception. Anti-doping organizations – whether public or private – have to be held to the same standards, including respect for physical integrity and privacy, and considerate application of the cornerstone principle of proportionality.

Throughout this global crisis, the World Anti-Doping Agency (‘WADA’) has carefully monitored the situation, providing anti-doping organizations and athletes with updates and advice. On 6 May 2020, WADA issued the document called ‘ADO Guidance for Resuming Testing’ (‘COVID Guidance’). A COVID-19 ‘Q&A’ for athletes (‘Athlete Q&A’) is also available on WADA’s website, and has been last updated on 25 May 2020. This article focuses on these two latest documents, and analyses the solutions proposed therein, and their impact on athletes.

Like many public or private recommendations issued for other societal activities, the WADA COVID Guidance is primarily aimed at conducting doping control while limiting the risk of transmission of the virus and ensuing harm to individuals. More specifically, one can identify two situations of interest for athletes that are notified for testing:

  1. The athlete has or suspects that they may have been infected with COVID-19, or has come in close contact with someone having COVID-19;
  2. The athlete fears to be in touch with doping control personnel that may be infected with COVID-19.

Quite obviously, either situation has the potential to create significant challenges when it comes to balancing the interests of anti-doping, with individual rights and data protection concerns. This article summarises how the latest WADA COVID Guidance and Athlete Q&A address both situations. It explores how the solutions suggested fit in with the WADA regulatory framework and how these might be assessed from a legal perspective.

The focus will be on the hypothesis in which international sports federations – i.e. private entities usually organised as associations or similar structures – are asked to implement the COVID Guidance within their sport. National anti-doping organizations are strongly embedded in their national legal system and their status and obligations as public or semi-public organisations are likely to be much more dependent on the legislative landscape put in place to deal with the COVID-19 pandemic in each country. Nevertheless, the general principles described in this article would apply to all anti-doping organizations alike, whether at international or national level. More...



How Data Protection Crystallises Key Legal Challenges in Anti-Doping - By Marjolaine Viret

Editor's Note: Marjolaine is a researcher and attorney admitted to the Geneva bar (Switzerland) who specialises in sports and life sciences. Her interests focus on interdisciplinary approaches as a way of designing effective solutions in the field of anti-doping and other science-based domains. Her book “Evidence in Anti-Doping at the Intersection of Science & Law” was published through T.M.C Asser Press / Springer in late 2015. She participates as a co-author on a project hosted by the University of Neuchâtel to produce the first article-by-article legal commentary of the 2021 World Anti-Doping Code. In her practice, she regularly advises international federations and other sports organisations on doping and other regulatory matters, in particular on aspects of scientific evidence, privacy or research regulation. She also has experience assisting clients in arbitration proceedings before the Court of Arbitration for Sport or other sport tribunals.


Since the spectre of the EU General Data Protection Regulation (‘GDPR’) has loomed over the sports sector,[1] a new wind seems to be blowing on anti-doping, with a palpable growing interest for stakes involved in data processing. Nothing that would quite qualify as a wind of change yet, but a gentle breeze of awareness at the very least.

Though the GDPR does mention the fight against doping in sport as a potential matter of public health in its recitals,[2] EU authorities have not gone so far as to create a standalone ground on which anti-doping organisations could rely to legitimise their data processing. Whether or not anti-doping organisations have a basis to process personal data – and specifically sensitive data – as part of their anti-doping activities, thus remains dependent on the peculiarities of each national law. Even anti-doping organisations that are incorporated outside the EU are affected to the extent they process data about athletes in the EU.[3] This includes international sports federations, many of which are organised as private associations under Swiss law. Moreover, the Swiss Data Protection Act (‘DPA’) is currently under review, and the revised legal framework should largely mirror the GDPR, subject to a few Swiss peculiarities. All anti-doping organisations undertake at a minimum to abide by the WADA International Standard for Privacy and the Protection of Personal Information (‘ISPPPI’), which has been adapted with effect to 1 June 2018 and enshrines requirements similar to those of the GDPR. However, the ISPPPI stops short of actually referring to the GDPR and leaves discretion for anti-doping organisations to adapt to other legislative environments.

The purpose of this blog is not to offer a detailed analysis of the requirements that anti-doping organisations must abide by under data protection laws, but to highlight how issues around data processing have come to crystallise key challenges that anti-doping organisations face globally. Some of these challenges have been on the table since the adoption of the first edition of the World Anti-Doping Code (‘WADC’) but are now exposed in the unforgiving light of data protection requirements. More...



Report from the first ISLJ Annual International Sports Law Conference - 26-27 October at the T.M.C. Asser Instituut

Close to 100 participants from 37 different countries attended the first ISLJ Annual International Sports Law Conference that took place on 26-27 October 2017 in The Hague. The two-day programme featured panels on the FIFA transfer system, the labour rights and relations in sport, the protection of human rights in sport, EU law and sport, the Court of Arbitration for Sport, and the world anti-doping system. On top of that, a number of keynote speakers presented their views on contemporary topics and challenges in international sports law. This report provides a brief summary of the conference for both those who could not come and those who participated and would like to relive their time spent at the T.M.C. Asser Institute.More...

The Russian Doping Scandal at the Court of Arbitration for Sport: The IPC’s Rio Ineligibility of Russian Paralympic Athletes

Editor's note: This blog is part of a special blog series on the Russian doping scandal at the CAS. Last year I analysed the numerous decisions rendered by the CAS ad hoc Division in Rio and earlier this year I reviewed the CAS award in the IAAF case.

Unlike the International Association of Athletics Federations (IAAF), the International Paralympic Committee (IPC) was very much unaffected by the Russian doping scandal until the publication of the first McLaren report in July 2016. The report highlighted that Russia’s doping scheme was way more comprehensive than what was previously thought. It extended beyond athletics to other disciplines, including Paralympic sports. Furthermore, unlike the International Olympic Committee (IOC) the IPC had a bit more time to deal with the matter, as the Rio Paralympic Games were due to start “only” in September.

After the release of the McLaren Report, the IPC president Sir Philip Craven was “truly shocked, appalled and deeply saddened at the extent of the state sponsored doping programme implemented in Russia”. He immediately announced the IPC’s intention to review the report’s findings and to act strongly upon them. Shortly thereafter, on 22 July, the IPC decided to open suspension proceedings against the National Paralympic Committee of Russia (NPC Russia) in light of its apparent inability to fulfil its IPC membership responsibilities and obligations. In particular, due to “the prevailing doping culture endemic within Russian sport, at the very highest levels, NPC Russia appears unable or unwilling to ensure compliance with and the enforcement of the IPC’s Anti-Doping Code within its own national jurisdiction”. A few weeks later, on 7 August, the IPC Governing Board decided to suspend the Russian Paralympic Committee with immediate effect “due to its inability to fulfil its IPC membership responsibilities and obligations, in particular its obligation to comply with the IPC Anti-Doping Code and the World Anti-Doping Code (to which it is also a signatory)”. Indeed, these “obligations are a fundamental constitutional requirement for all National Paralympic Committees (NPCs), and are vital to the IPC’s ability to ensure fair competition and to provide a level playing field for all Para athletes around the world”. Consequently, the Russian Paralympic Committee lost all rights and privileges of IPC membership. Specifically, it was not entitled to enter athletes in competitions sanctioned by the IPC, and/or to participate in IPC activities. Thus, “the Russian Paralympic Committee will not be able to enter its athletes in the Rio 2016 Paralympic Games”. More...


The Russian Doping Scandal at the Court of Arbitration for Sport: The IAAF’s Rio Ineligibility of Russian Athletes

Since the release of the earth-shattering ARD documentary two years ago, the athletics world has been in a permanent turmoil. The International Athletics Association Federation (IAAF) is faced with both a never-ending corruption scandal (playing out in front of the French police authorities) and the related systematic doping of Russian athletes. The situation escalated in different phases led by the revelations of Russian insiders. First, in December 2014 with the ARD documentary, which demonstrated how widespread (and organized) the recourse to doping was in Russian athletics. It triggered the Pound investigation financed by the World Anti-Doping Agency (WADA), which led to two damaging reports (available here and here) for the Russian anti-doping system and the IAAF itself. Thereafter, in November 2015, the IAAF had no other choice but to provisionally suspend the Russian athletics federation (ARAF then RusAF) and its members from IAAF competitions. Yet, this was only the beginning as shortly after the former head of Moscow’s anti-doping laboratory provided a detailed sketch to the New York Times of the operation of a general state-led doping scheme in Russia. The system was designed to avert any positive doping tests for top-level Russian sportspeople and was going way beyond athletics. These allegations were later largely confirmed and reinforced by the McLaren investigation initiated by WADA in May 2016, and which published its first report in July 2016 shortly before the Rio Olympics. In June 2016, the IAAF anticipated the conclusions of the report (it had received most of McLaren’s evidence beforehand) and decided to maintain the ineligibility of Russian athletes for IAAF competitions, and for the Rio Olympics. It did, however, foresee a narrow exception for Russian athletes able to show that they were properly tested outside of Russia. Nonetheless, the athletes using this exception were to compete under a neutral flag at the Olympics. Unsurprisingly, Russian athletes led by pole superstar (and now IOC member), Yelena Isinbayeva, and the Russian Olympic Committee decided to challenge this decision in front of the Court of Arbitration for Sport (CAS). Interestingly, while the decision was rendered on 21 July 2016, the full text of the award was publically released only on 10 October 2016. In September, I analysed the Rio CAS Ad Hoc Decisions involving Russian athletes aiming to participate to the Olympics. I will now turn to the IAAF decision, which is of great importance to the future of the anti-doping system. Indeed, it lays out the fundamental legal boundaries of the capacity of international federations to impose sanctions on their members (and their members) in order to support the world anti-doping fight. More...

International and European Sports Law – Monthly Report – November and December 2016. By Saverio Spera.

Editor’s note: This report compiles all relevant news, events and materials on International and European Sports Law based on the daily coverage provided on our twitter feed @Sportslaw_asser. You are invited to complete this survey via the comments section below, feel free to add links to important cases, documents and articles we might have overlooked. 


The Headlines

The Russian State Doping Scandal and the crisis of the World Anti-Doping System

Russian doping and the state of the Anti-Doping System has been the dominant international sports law story in November and December. This is mainly due to the release of the second report of the McLaren’s investigation on 9 December 2016. The outcome of McLaren’s work showed a “well-oiled systemic cheating scheme” that reached to the highest level of Russian sports and government, involving the striking figure of 30 sports and more than 1000 athletes in doping practices over four years and two Olympic Games. The report detailed tampering with samples to swap out athletes’ dirty urine with clean urine.More...


The World Anti-Doping System at a Crossroads

“One day Alice came to a fork in the road and saw a Cheshire cat in a tree. ‘Which road do I take?’ she asked. ‘Where do you want to go?’ was his response. ‘I don’t know,’ Alice answered. ‘Then,’ said the cat, ‘it doesn’t matter.”

Tomorrow the Foundation Board of the World Anti-Doping Agency (WADA) will gather in Glasgow for its most important meeting since the creation of the Agency. Since the broadcasting of a documentary alleging systematic doping in Russian athletics by the German public broadcaster in December 2014, the anti-doping world has been in disarray. The various independent investigations (the Pound Report and the McLaren Report) ordered by WADA into doping allegations against Russian athletes have confirmed the findings of the documentary and the truth of the accusations brought forward by Russian whistle-blowers. Undeniably, there is something very rotten in the world anti-doping system. The current system failed to register a widespread, and apparently relatively open, state-sponsored scheme aimed at manipulating any doping test conducted in Russian territory. Moreover, it was not WADA that uncovered it, but an independent journalist supported by courageous whistle-blowers. More...


Taking the Blue Pill or the Red Pill: Should Athletes Really Check their Medications against the Prohibited List Personally? - A Comment by Marjolaine Viret (University of Neuchâtel )

Editor's Note:  Marjolaine is an attorney admitted to the Geneva bar (Switzerland) who specialises in sports and life sciences.   She currently participates as a scientific collaborator at the University of Neuchâtel on a research project to produce the first article-by-article legal commentary of the 2015 World Anti-Doping Code. Her latest book Evidence in Anti-Doping at the Intersection of Science & Law was published in 2016 in the International Sports Law Book Series of T.M.C. ASSER Press.


INTRODUCTION

On 30 September 2016, a panel of the Court of Arbitration for Sport (“CAS”) rendered its award in the matter opposing high-profile tennis player Maria Sharapova to the International Tennis Federation (“ITF”). Maria Sharapova was appealing the two-year ban imposed on her by the ITF Tribunal in June 2016 for her use of Meldonium, a substance newly added to the WADA Prohibited List 2016[1]. Since neither the ITF nor WADA had chosen to challenge the Tribunal’s decision, the stakes of the case were rather simple: would the player convince the CAS panel that she should benefit from a finding of “No Significant Fault or Negligence”[2], thereby allowing for a reduction of the sanction down to a minimum of one year, or should the decision of the Tribunal be upheld? In its award, the CAS panel decided to grant such finding and reduced the sanction to 15 months.

This blog does not purport to be a ‘comment’ on the CAS award. Rather, it seeks to place the Sharapova matter into a broader context with respect to a specific issue: the expectations on Athletes when it comes to their awareness of the prohibited character of a substance, specifically when taking a medication[3]. In July 2016, I presented at the T.M.C Asser Institute in The Hague various current challenges of anti-doping that the Meldonium cases exposed (see the video here). One of these challenges concerned the modalities for including new substances onto the Prohibited List. This blog represents a follow-up on my presentation, in the light of the findings contained in the CAS award. More...



Asser International Sports Law Blog | Case note: State aid Decision on the preferential corporate tax treatment of Real Madrid, Athletic Bilbao, Osasuna and FC Barcelona

Asser International Sports Law Blog

Our International Sports Law Diary
The Asser International Sports Law Centre is part of the T.M.C. Asser Instituut

Case note: State aid Decision on the preferential corporate tax treatment of Real Madrid, Athletic Bilbao, Osasuna and FC Barcelona

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.[1] 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

Background

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.[2] 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 evolved.[3]

Intervention by the European Ombudsman

The complaint was given a “high priority status” by the European Commission[4] 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.[5] 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 football clubs.[6] 

The Decision

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.[7] 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.[8] 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.[9] 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.[10] 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.


The 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.[11]


Are the 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”.[12] 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”.[13] 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 sporting entities.[14] 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”.[15]


Justification 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.”[16] 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.[17]

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”.[18]

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”.[19] 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.


Compatibility 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.[20] 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.[21] 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.[22] 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”.[23]

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.[24] 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 Commission.[25]

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.[26] 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 tax rate.[27] 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. 


Conclusion

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 per club.[28] 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.



[1] 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

in 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 football clubs.

[2] Draft recommendation of 16 December 2013 of the European Ombudsman in the inquiry into complaint 2521/2011/JF against the European Commission, points 1-3.

[3] Commission Decision of 4 July 2016, SA.29769 on the State Aid implemented by Spain for certain football clubs, paras. 5-9.

[4] Draft recommendation of the European Ombudsman in the inquiry into complaint 2521/2011/JF against the European Commission, point 13.

[5] “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”.

[6] 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.

[7] C Quigley, “European State Aid Law and Policy”, Hart Publishing (2015), pages 109-127.

[8] See for example Joined Cases C-78/08 to C-80/08 Paint Graphos and others ECLI:EU:C:2011:550, para. 49.

[9] Commission Decision of 4 July 2016, SA.29769, para. 51.

[10] 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.

[11] 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.

[12] 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.

[13] Commission Decision of 4 July 2016, SA.29769, para. 56.

[14] Ibid, para. 65

[15] Ibid, para. 67.

[16] Ibid, para. 24.

[17] Ibid, para. 61.

[18] Ibid, para. 68.

[19] Ibid, para. 71.

[20] See for example Commission Decision of 10 October 2015, SA.38374 on State aid implemented by the Netherlands to Starbucks, para. 433.

[21] Commission Decision of 4 July 2016, SA.29769, para. 86.

[22] Commission Decision of 9 November 2011, SA.31722 – Hungary - Supporting the Hungarian sport sector via tax benefit scheme., paras 95-98.

[23] 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 May 2016.

[24] 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.

[25] Commission Decision of 4 July 2016, SA.29769, paras. 93-97.

[26] 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”.

[27] Commission Decision of 4 July 2016, SA.29769, para. 34.

[28] 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.

Comments (2) -

  • Boris

    11/7/2016 7:50:54 PM |

    Very interesting analysis.

    "there are reasons to believe that the Commission’s delay in investigating the matter was only halted after an intervention by the European Ombudsman"

    This is really scary stuff, very close to corruption, why was the EC protecting a few companies? why does the EC take such huge reputational risks? It is all very strange. Looking at this, it is not really surprising that the US believes that the EU's competition policy is biased.

    One question, EC has stated that Spain has already amended the tax rules and you say that the discriminatory treatment has ended in 2015 but under the current Spanish corporation tax law (articles 109-111) the sport clubs are still exceptionally allowed (as partially exempted entities) to treat many items of revenue as fully exempt for corporation tax purposes. The tax rate may now be the same but the tax base selective advantage still exists. Has the EC asked Spain to eliminate this preferential treatment or are lower corporation tax bases a clever loophole that could be used by the likes of Luxembourg and Ireland to favour specific companies? At the end of the day, these countries could achieve the same result whether it is by reducing the tax base or by granting a lower tax rate.

    The EC has ruled Real Madrid and Barca will have to calculate their taxes since 2000 as if they had been sport limited companies but sport limited companies can only participate in one sport discipline (i.e. they cannot participate in football and basketball simultaneously). Will an exception be made for Real and Barca or will they have to calculate their football and basketball taxes separately? How could the EC justify the exception?

    The Telegraph referred to a €7m annual tax saving due to the ability to set-off basketball losses against football profits (www.telegraph.co.uk/.../) and over 16 years this could add up to a huge amount.

    Have you noticed that there is a provision in the new corporation tax law (seventh additional disposition) that states that the conversion of the sport clubs into PLCs shall be free of corporation tax (for the undertakings that would receive the assets) and free of personal tax (for the non-profit members that would make a handsome profit by receiving the shares of the clubs). This is a very weird transaction for any non-profit and the model could be replicated elsewhere to circumvent state aid rules. Why should the conversion not be taxed according to the general tax rules for both corporations and individuals? Has the EC asked Spain to end this discriminatory treatment?

    Many thanks

    • Oskar van Maren

      11/8/2016 12:33:25 PM |

      Dear Boris,

      Thank you very much for your comment.

      You pose a series of questions that will require me to look into the matter thoroughly.

      I shall get back to you as soon as possible and look forward to the discussion with you.

      Best,

      Oskar

Comments are closed