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The tax authorities continue to focus their verification and inspection procedures on the world of sports. This time, a foreign soccer club is involved: A.S. Monaco. This club was founded in the Principality of Monaco and currently plays in the French Ligue 1 (under a sports agreement, as it is not a French team).

Once again, the information has been gathered from the Football Leaks documents obtained by German weekly Der Spiegel. According to those documents, at the end of 2015, the tax authorities claimed €11.7 million from the club for tax on non-resident income (Impuesto sobre la Renta de No Residentes – IRNR)resulting from the sale of three of its star players, James Rodríguez, Yannick Carrasco and Aymen Abdennour, to three Spanish clubs, Real Madrid, Atlético de Madrid and Valencia, respectively.

Based on the above, the tax authorities seem to consider that the registration rights of the players acquired by the Spanish clubs are exercised in Spain, and that therefore, as (i) there is no treaty for the avoidance of double taxation signed with the Principality of Monaco to limit taxation in Spain; and (ii) Monaco is considered to be a tax haven and the capital gains exemption regulated in Article 14 of the IRNR does not apply, A.S. Monaco must pay non-resident income tax in Spain on the capital gains generated by each of the three mentioned signings.

However, this criterion adopted by the tax authorities is not new. The Directorate General of Taxation (“DGT”) had already ruled along similar lines in 2014 in reply to a consultation by a Spanish soccer team on the implications in the case of IRNR from the signing of a player from Monaco (see binding consultation V2164-14). To avoid a future tax contingency and gain legal certainty, the Spanish team asked whether, under IRNR regulations i) Monaco could record a capital gain in Spain as a consequence of the sale of a player that should be subject to withholding by the Spanish team, and (ii) the latter would be responsible in its role as payer for the debt that the transferring club should pay in in Spain.

The DGT’s conclusions were clear:

  • Income derived from the transfer of ownership of a right forming part of the assets of the transferring entity (Monaco) qualifies as a capital gain or loss for the party receiving it.
  • The rights acquired will be exercised in Spain by the Spanish soccer team, becoming part of its assets. Therefore, the income is a capital gain that is taxable in Spain.
  • The Spanish club is not required to make any withholding on the payments it makes when acquiring the registration rights.
  • The Spanish team will not be severally liable for the payment of the debt corresponding to the capital gain generated in Monaco.

Despite this ruling, it appears that A.S. Monaco did not correctly assess in Spain the capital gains generated by the sale of its players. However, according to source at the Monaco club, the tax debt the treasury was claiming has already been paid…and appealed. Therefore, we will have to wait a few months (years, perhaps) for news on this matter.

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Área derecho Deportivo

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