Spain’s tax regime for football clubs was notifiable state aid
In European Commission v Fútbol Club Barcelona (Case C-362/19 P) (4 March 2021), the Court of Justice of the European Union (CJEU) overturned the decision of the General Court, finding that the European Commission is not required to investigate the actual aid received by individual taxpayers at the stage of challenging the state aid scheme. It then made the decision itself, rejecting all of the taxpayer’s arguments and confirming that the Spanish tax regime was a state aid scheme that should have been notified.
The case concerns a Spanish law that required most Spanish professional sports clubs to convert into a specific type of company subject to Spain’s standard corporate tax rate. There was an exception for clubs that had been consistently profitable in the years running up to the change in law. Those clubs (including Barcelona) could retain their existing status, benefitting from a lower rate of tax.
The Commission had investigated the scheme and found it to be a state aid scheme that should have been notified. The Commission issued its decision in 2016 and ordered the Spanish tax authority to recover the aid granted.
The General Court had decided, in 2019, that the Commission had not provided sufficient evidence of the actual advantage provided to these clubs, in particular, failing to take into account whether the reduced rate was offset by less favourable deduction rates.
The Commission appealed to the CJEU, which found in favour of the Commission. The decision largely followed the decision of the advocate general issued in October 2020.
The CJEU first considered the procedural question about the extent to which the Commission was required to consider the actual aid provided to specific taxpayers in assessing the lawfulness of a given scheme. The CJEU found that the Commission had been correct to focus its examination on whether the scheme was state aid in its entirety; and that it was not required to assess the aid provided to each individual beneficiary until the recovery stage of a state aid case. The CJEU found that the impossibility of establishing exactly how much advantage would be given in any given tax year cannot prevent a finding that it is a notifiable scheme.
The CJEU then considered the scheme itself, finding that the Spanish tax regime did confer an advantage on the clubs who were allowed to remain in their existing structures and that that advantage was capable of falling within the scope of article 107(1) of the Treaty on the Functioning of the European Union. It also rejected all of Barcelona and the Kingdom of Spain’s remaining arguments, including in relation to legitimate expectation and justification.
Why it matters: Paragraphs 57–66 of the decision are a succinct and useful description of how state aid comes to be relevant to general corporate taxation measures. That said, apart from in relation to Northern Ireland goods and historical references (for example in relation to the finance company exemption for the UK’s CFC rules, in relation to which there are ongoing cases), the EU’s state aid rules have ceased to apply to the UK’s tax regime with effect from IP completion day. We await, with interest, news on the UK’s proposals on its subsidy control mechanisms and the extent to which they may be relevant to taxation.
Spain’s tax regime for football clubs was notifiable state aid
In European Commission v Fútbol Club Barcelona (Case C-362/19 P) (4 March 2021), the Court of Justice of the European Union (CJEU) overturned the decision of the General Court, finding that the European Commission is not required to investigate the actual aid received by individual taxpayers at the stage of challenging the state aid scheme. It then made the decision itself, rejecting all of the taxpayer’s arguments and confirming that the Spanish tax regime was a state aid scheme that should have been notified.
The case concerns a Spanish law that required most Spanish professional sports clubs to convert into a specific type of company subject to Spain’s standard corporate tax rate. There was an exception for clubs that had been consistently profitable in the years running up to the change in law. Those clubs (including Barcelona) could retain their existing status, benefitting from a lower rate of tax.
The Commission had investigated the scheme and found it to be a state aid scheme that should have been notified. The Commission issued its decision in 2016 and ordered the Spanish tax authority to recover the aid granted.
The General Court had decided, in 2019, that the Commission had not provided sufficient evidence of the actual advantage provided to these clubs, in particular, failing to take into account whether the reduced rate was offset by less favourable deduction rates.
The Commission appealed to the CJEU, which found in favour of the Commission. The decision largely followed the decision of the advocate general issued in October 2020.
The CJEU first considered the procedural question about the extent to which the Commission was required to consider the actual aid provided to specific taxpayers in assessing the lawfulness of a given scheme. The CJEU found that the Commission had been correct to focus its examination on whether the scheme was state aid in its entirety; and that it was not required to assess the aid provided to each individual beneficiary until the recovery stage of a state aid case. The CJEU found that the impossibility of establishing exactly how much advantage would be given in any given tax year cannot prevent a finding that it is a notifiable scheme.
The CJEU then considered the scheme itself, finding that the Spanish tax regime did confer an advantage on the clubs who were allowed to remain in their existing structures and that that advantage was capable of falling within the scope of article 107(1) of the Treaty on the Functioning of the European Union. It also rejected all of Barcelona and the Kingdom of Spain’s remaining arguments, including in relation to legitimate expectation and justification.
Why it matters: Paragraphs 57–66 of the decision are a succinct and useful description of how state aid comes to be relevant to general corporate taxation measures. That said, apart from in relation to Northern Ireland goods and historical references (for example in relation to the finance company exemption for the UK’s CFC rules, in relation to which there are ongoing cases), the EU’s state aid rules have ceased to apply to the UK’s tax regime with effect from IP completion day. We await, with interest, news on the UK’s proposals on its subsidy control mechanisms and the extent to which they may be relevant to taxation.
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