Despite this win, Barcelona and Messi have stuttered this season. Amongst the variety of reasons provided by the pundits is Messi's problems with the tax authorities (see previous post detailing the leaking of the tax problems here). Not that Real Madrid and Ronaldo are as pure as the colour of their shirts (see previous post on careful tax planning here). The financial machinations are not limited to the leading members of each team. The teams themselves have been found to have received unfair State aid from the Spanish government according to an EU decision published at the end of 2016 (SA.29769).
Twenty seven years ago, the Spanish authorities claimed they were worried about the financial stability of many of their football clubs. As a result, a measure known as “ley del deporte” was introduced. The measure force all but four clubs to become limited liability companies. Barcelona and Real Madrid were two of these clubs that remained not-for-profit. Clubs were evaluated on only one year’s financial accounts. Those clubs who did not meet particular requirements were forced to become limited liability companies whereas as the other remained not-for-profit entities. It was a once-and-for-all change. Subsequent changes in the financial position of the clubs did not alter the way the club was incorporated.
The lack of freedom about the corporate form of the football clubs lay at the root of the State Aid case. The reason for this was because the tax rate for limited liability entities was 30% whereas that for not-for-profit clubs was 25%.
Europe has rules about how the member state governments can intervene in the market. The relevant rule in this case is Article 107 of the current EU Treaty. In practice it involves examining if the aid is coming from State resources, if it is selective, and if it threatens to distort the market. It is easy to see how a 5% difference in taxation might distort the market. It is also easy to see how it might be deemed selective. And, the benefit is clearly coming from State resources (in the form of taxation forgone compared to the 30% rate). Hence, the State aid decision.
The Spanish authorities argued that the treatment of the clubs was consistent with Spanish tax law. They argued that all not-for-profit clubs were charged 25% and that these four football clubs were no different. Europe argued that the problem was that the other clubs did not have a choice in whether they incorporated as a limited liability company or as a not-for-profit clubs. They were forced to become limited liability companies. The problem was the “ley del deporte” and how it was implemented. Europe decided that the four clubs got unfair state aid and ordered the Spanish authorities to recoup the aid - although no amount was specified.
My guess is that the amount that will be recouped will do little in the short-term to damage the domination of Barcelona and Real Madrid.