The Audiencia Nacional upholds Real Madrid's claim over payments to footballers' agents between 2011 and 2015

Friday, 3 de November de 2023

As it is well known, the figure of the football players' agent has become an essential part of the professional football ecosystem, both in terms of achieving transfers between players and clubs, as well as in the management of the professional career of players, who have found in agents (also called intermediaries between 2015 and part of 2023) much-needed advice on many aspects that arise in the career of a professional player.

Generally, the services provided by agents are remunerated through the payment of a commission (now referred to as a "fee" by the FIFA 2023 Regulations on Football Agents) which, depending on the party represented by the agent, may constitute (i) a % of the value of the transfer in which he has intervened or (ii) a % of the player's salary for employment contracts that have been concluded with the involvement of the agent.

In this respect, when the agent acts on behalf of the club, there is no doubt as to who is obliged to pay the commission; it is always the club. However, the situation can change significantly in the agent-player relationship, where there is also no doubt that it is the player who is obliged to pay, but on many occasions, it is the club who ends up paying the commission on behalf of the player after reaching an agreement with the latter. This is precisely what Real Madrid did, as well as many other clubs, who paid commissions to the players' agents for transfers, contract negotiations, departures, transfers of rights or termination of contracts on behalf of the players and then deducted the amounts paid in their tax returns.

This was precisely that led the State Tax Administration Agency (AEAT) to undertake a series of inspections and subsequently impose penalties in relation to input VAT paid to agents and deductibility for corporate income tax (IS) purposes. In the case of Real Madrid in particular, the AEAT inspection of payments to agents between 2011 and 2015 considered that the remuneration paid by Real Madrid to football player agent, together with the VAT payments charged by them, should be considered as payments made on behalf of the players, given that the agents provided their services to the players, and not to the football club, in accordance with the provisions of the FIFA Players' Agents Regulations (ed. 2008), and that the appropriate regularizations should therefore be made.

The criterion upheld by the Tax Agency was initially accepted by the Audiencia Nacional (National High Court). However, the Supreme Court, in its judgments of February 2023, overturned the Tax Agency’s reasoning and declared that the tax settlement mechanism Real Madrid applied in this specific case corresponds to a valid tax mitigating scheme (economía de opción) and that the club had not incurred in any irregularity in making these deductions.

Now the Contentious-Administrative Chamber of the Audiencia Nacional (judgment of 29 June 2023), accepting the jurisprudence of the Supreme Court some months ago, has determined that the margin of option that the tax law allows for the qualification operation has been clearly and incontrovertibly exceeded, because this power cannot be used to convert one business into a different business, in this case a business consisting of an intermediation contract between a Club and an Agent for the transfer/renewal of a player, into a different contract between the Agent and the player, which the Club pays on behalf of the player.

Based on the foregoing, the National Court concludes that the Tax Administration has exceeded the limits of the powers conferred on it by art. 13 of the General Tax Law (“LGT”) by classifying the payments made to the agents by Real Madrid as players’ employment income paid by the club on behalf of the players. In this regard, the National Court determined that other legal provisions (such as art. 15 or 16 LGT) should have been used for this purpose and, as it had used an inappropriate way to carry out the regularization, the regularization should be annulled.

Following the National Court's ruling on payments to agents between 2011 and 2015, Real Madrid is now entitled to be reimbursed for what it was not allowed to deduct during that period. In this regard, it should be noted that the amount will depend on the level of transfers and payments made by the club to agents between 2011 and 2015; years in which the club carried out transfer operations involving extremely high amounts such as those of Gareth Bale, James Rodriguez or Luka Modric, among others.

Finally, it is important to note that during the periods in which the investigations were conducted (2011-2015), the FIFA Agents' Regulations 2008 were in force, which did not establish any limitation on payments to agents being made by the club on behalf of the player. However, the FIFA Agents' Regulations now in force (2023 edition) do expressly prohibit the club from paying the agent's commission on behalf of the Player, with the sole exception of the case where the player's annual salary is less than USD 200,000. Attention will need to be paid to the transactions that clubs undertake in this regard following the inclusion of such a prohibition and how this will affect the issue that is the subject of this article.

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