Expert Column

Miquel Terrasa, Partner, KPMG Spain on \"The Use of Football Players’ Image Rights in Spain: Current Issues\"
The Use of Football Players' Image Rights in Spain: Current Issues

In Spain, generally speaking, the assignment to third parties of a football player’s image rights or consent or authorisation to use them is taxed as investment income, unless such assignment takes place within the context of an economic activity, in which case it is classified as income from economic activities, or unless the assignment arises as a result of the start of an employment relationship, in which case it is classified as earned income. In both instances, the athlete should pay tax on the income at the relevant marginal tax rate (in Spain, up to 56 percent), although if income is classified as income from economic activities, certain expenses linked exclusively to income obtained by the player are deductible.
Thus, in recent years the current taxation structure has allowed proliferation of the use (and abuse) of corporate structures set up by the football players themselves for the discretionary use of their own image rights, with the corporate structures receiving the income derived from sub-licensing of these rights to the club by whom the player is employed and to third parties wishing to enter into endorsement or sponsorship agreements, as a result of which less tax is paid in form of corporate income tax (generally, 30 percent) than that which would be payable as personal income tax.
The assigning player must receive consideration for assigning the rights to the company, which will generally be classified as investment income taxable for personal income tax purposes as part of the general taxable base at the appropriate marginal tax rate. This point is critical to the veracity of the legal business carried out, inasmuch as the assignment must be made for its fair market value and must not stem from a wish to achieve fiscal optimisation through the use of questionable corporate structures, but rather must reflect a genuine intention to make systematic commercial use, by means of the appropriate material and human resources, of the image rights of a professional athlete.
That said, the subsequent assignment –by the company– of these image rights to the club with which the player maintains an employment relationship constitutes a legal scheme that will be deemed as effective (article 92 of the Personal Income Tax Law, the so-called 85/15 rule) provided earned income obtained by the player by virtue of the employment relationship with the club is not less than 85 percent of the sum of the aforementioned earned income, plus the amounts paid by the company as consideration for the assignment of the right to use the image of the player. Thus, the Spanish lawmaker has decided to retain this kind of “tax safe haven”, provided the aforementioned proportion (85/15) is adhered to and the company has sufficient means to do so. In this case, the player will achieve some tax savings since income obtained by the assignee company from the use of image rights will be taxed at a lower rate than that which would apply for personal income tax purposes. Conversely, if the aforementioned proportion is not met, this income must be taxed as earned income within the general tax base for personal income tax at the appropriate marginal tax rate.
On the other hand, if the assignee company in turn assigns these rights to an independent advertiser or sponsor who has no connection whatsoever with the club or entity with which the player has an employment relationship, the 85/15 rule does not apply, and all income from such assignment will be subject to corporate income tax.
However, in recent months we have witnessed countless items of news highlighting the verification and inspection proceedings undertaken by the Spanish tax authorities in connection with the assignment and subsequent corporate use of professional football players’ image rights. Certainly, it is surprising that such proceedings are conducted with respect to athletes who have a special employment relationship –in the case of football players in Spain, that governed by Royal Decree 1006/1985-, and not only to those whose main activity affords them greater scope for manoeuvre (for example, golf players, tennis players, car drivers, motorcycle riders, etc.).
The above notwithstanding, the tax inspection body maintains that these companies are mere instruments and that the player himself must be taxed for all (or practically all) of the income obtained by him –with the concomitant increase in the tax payable- based on the inspectors’ understanding that this income stems from the highly personal nature of the actions undertaken by the player through his companies. In other (fewer) cases, the inspectors show less flexibility, deeming the legal business between the player and the company to be simulated, with the concomitant legal and tax detriment.
This being the case and pending any future rulings by the courts on the case files opened in recent months, we must conclude that, at present, the use in Spain of this type of company for the purpose of using football players’ image rights could be considered questionable. Consequently, it seems advisable to adopt a cautious approach and carefully review and analyse any existing structure whose activity consists of the use of such image rights. Prudence is also required when designing new corporate structures to provide a vehicle for image rights and highly personal services, both for those who maintain a special employment relationship –football players under RD 1006/1985– and for other professional athletes.