Valencia resorts to the Supreme Court to avoid a payment of 2.3 million to the Treasury

The Valencia Football Club has resorted to the Supreme Court to avoid a payment of 2.3 million to the Tax Agency for alleged irregularities with the VAT between 2011 and 2014. The National Court already rejected their arguments a year ago, but the Contentious Chamber of the Supreme Court will review the case considering that the Treasury could go too far. “There is no undue income,” defends the club.

The claim of the Tax Agency points to two different issues: on the one hand, its payments to “agents or representatives of soccer players” as a result of the signings, transfers and contracts of soccer players and, on the other, the transfers of those same players to other clubs established in Spain.

payments to agents

The Treasury has been chasing clubs for several years for payments to footballer representatives. The Tax Agency defends that the agents only work for the players and, therefore, these payments are still a way of increasing the salary of the latter. The agents' invoices include VAT and the clubs deduct it later, but when applying the reasoning that it is a hidden payment to players, the Treasury points out that it is irregular.

The National Court has welcomed these types of claims in recent years, but the Supreme Court has just changed the rules. His new doctrine does not go into the substance of the debate on payments to agents, but in a procedural aspect to conclude that the Treasury should have claimed the money in another way.

The key is found in article 13 of the General Tax Law (LGT): “Tax obligations will be required in accordance with the legal nature of the acts, facts or business carried out”. The Supreme Court concluded in February that the Tax Agency should not have based its claims on this article, since its inspections went beyond an examination of “the legal nature” and entered to assess the three-way relationship between clubs, agents and soccer players.. To pursue this type of practice, legal sources point out that it should have been based on article 16, which opens the door to inspections for “acts or businesses in which there is simulation”.

The Supreme Court has not yet made a decision regarding Valencia, but by admitting its appeal, it points out that this will be the central question: “Determine if the tax administration can, in exercise of the qualification power provided for in article 13 LGT, isolate the economic flow of the business that is said to be classified, and place it in another parallel business scheme”, agrees in a car to which El Confidencial has had access. In recent months, the courts have already annulled claims against Real Madrid, Barça and Atlético de Madrid for this reason..

The transfers of players

The second part of the debate will focus on the transfers of players to other clubs. The Tax Agency considers that these report “benefits to the transferor (Valencia CF) to the extent that the player's salary and social contributions were saved and the player was trained”. Taking into account the “residual gain due to that training and experience”, he argued that the club had not passed on the corresponding VAT amounts.

In this case, the debate revolves around article 4 of the Value Added Tax Law (LIVA): “Supplies of goods and services carried out in the spatial scope of the tax by businessmen or professionals for consideration will be subject to tax”. Although in these assignments a monetary price is not set, the Treasury considers that they fit with this article: “It is not a free loan without obtaining anything in return”.

The National Court approved this reasoning in March 2022, but warned that it had hardly any practical effects for the club: “If, as has been reasoned, Valencia has carried out a provision of services for which the corresponding VAT has not been paid, nor has it been passed on to the transferee club, and no VAT has been passed on for the player's training, the hypothesis of the deduction of VAT not paid is purely theoretical,” he explained in his ruling..

Despite this, the Supreme Court has also now agreed to review this issue, which could have consequences for other cases: “Clarify whether the assignments or loans of soccer players to another club on a temporary basis and in which no price is set for the assignment, constitute services rendered for consideration for the purposes of article 4 of the [LIVA] and, therefore, are subject to tax.”