La Liga stars again pursued by taxman

La Liga’s top stars are again peeking over their shoulders as Hacienda, the Spanish tax authority, conducts an ongoing investigation into the way in which their salaries are structured. Spanish publication El Mundo revealed this week that apart from the recent cases opened against Lionel Messi and Neymar, for different reasons, the treasury is now taking a look at the companies the top earners use to handle their image rights.

As a result of legislation introduced in 1996, professional athletes in Spain are allowed to receive 15 per cent of their salary in image rights through these companies. The remaining 85 per cent is taxed at the Personal Income Tax rate, which is 52 per cent in most of Spain and 56 per cent in Catalonia, while the rest is paid at Corporation Tax rate, a much lower figure that this year stood at 30 per cent.

However, Hacienda are understood to have already carried out several reviews and checks on companies involved in representing a number of individuals, concluding that while these ostensibly claim to be working on behalf of the players, in reality there is no real work being done or activity taking place.

Therefore, they argue, players should be forced to pay the difference between the 30 per cent Corporate Tax and the 52 per cent (or 56 per cent) Personal Income Tax – in other words, the money received for image rights should be classed as part of their salary and subjected to the top rate as required by law.

The good news for the players, if there is any, is that the statute of limitations in Spain applies after four years, meaning they cannot be investigated for the period beyond that except in exceptional circumstances. Even so, a player on the second wage tier at Real Madrid or Barcelona, for example, who is reported to earn around €6m per year net, would now be hit with an estimated €1.5m tax bill.

El Mundo insists the inspections have particularly focused on the Madrid and Barca dressing rooms, although other squads including those at Valencia and Atletico Madrid have also come under scrutiny. The report went on to name Sergio Ramos, Iker Casillas, Andres Iniesta, Xavi Hernandez and Gerard Pique as just some of the players alleged to have been implicated.

At the moment the investigators have the power to go as far back as 2009 and it is believed that some players now retired, as well as a few to have left Spanish football to ply their trade abroad in that time, have already been contacted by the tax authorities. In fact, it is alleged that Spanish international Fernando Llorente was obliged to provide Hacienda with information following his move from Athletic Bilbao to Juventus in July 2013.

That said, the majority of those under examination have instructed their advisors to attempt to come to some kind of agreement with the authorities for fear of ruining their image in the eyes of supporters. That is despite the fact that the treasury has been unable to establish for definite that the companies are not performing some kind of service concerning their players’ image rights.

On the other hand, experts consulted by El Mundo said Hacienda now plan to alter the conditions under which they rule on these kind of issues and there was now a proposal to amend the law. The new line taken is related to a 2004 Corporation Tax Law which states that any transaction between a company and its partners should be made at market prices, which at the time sought to prevent people involved in show business from benefiting from low taxation, their total income being taxed at 30 per cent.

How will all this affect players’ contracts if these measures are to be implemented? For one thing, the contract renewal process and any further transfer business will undergo a drastic overhaul, as the footballers and their representatives are sure to insist that all negotiations henceforth are conducted with a net figure as the bottom line.

This may mean that the full amount required would need to be met by the clubs, given that a player’s total salary would then be subject to income tax.

Nonetheless, the authorities are not considering that clear cases of tax fraud exist, at least for now, but what they are looking at is for players to pay the difference between the two different tax brackets. It is not a view shared by one tax expert consulted by El Mundo.

“Why don’t they just modify the rule and directly prohibit the use of companies to exploit a player’s image rights?” he asked.

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