CJEU: The tax scheme of four Spanish football clubs constitutes State aid
On 4 March 2021, the Court of Justice of the European Union (CJEU) ruled that the tax regime that four Spanish football clubs have benefited from is considered illegal State Aid.
Background to the dispute
A Spanish law adopted in 1990 obliged all Spanish professional sports clubs to convert into public limited sports companies (’SLCs’), with the exception of professional sports clubs that had achieved a positive financial balance during the financial years preceding adoption of that law. Four professional football clubs (Fútbol Club Barcelona, Club Atlético Osasuna, Athletic Club Bilbao and Real Madrid Club de Fútbol) which came within that exception had thus chosen to continue operating in the form of non-profit legal persons and enjoyed, in that capacity, a special rate of income tax. Until 2016, that rate remained below the rate applicable to SLCs.
By the decision of 4 July 2016, the Commission had taken the view that that legislation, in introducing a preferential corporate tax rate for the four clubs concerned, constituted unlawful and incompatible State aid.
By application lodged at the Court Registry, Fútbol Club Barcelona brought an action for annulment of the decision at issue.
The General Court held that the Commission did not properly analyse the extent of the tax deductions for the reinvestment of extraordinary profits permitted under the aid regime, in order to determine whether an advantage exists for the purposes of Article 107(1) TFEU.
In the judgment of 4 March 2021, the Court of Justice, granting the form of order sought in the appeal brought by the Commission, sets aside the judgment under appeal.
Findings of the Court
The Court held that the General Court erred in law when it found that the decision at issue was to be construed as a decision relating both to an aid scheme and to individual aid. In the case of an aid scheme, a distinction must be drawn between the adoption of that scheme and the aid granted on the basis of it. Individual measures which merely implement an aid scheme constitute mere measures implementing the general scheme, which do not, in principle, have to be notified to the Commission.
Accordingly, the mere fact that, in the present case, aid was granted individually to the clubs on the basis of the aid scheme at issue cannot have any bearing on the examination which the Commission is required to carry out, under Article 107(1) TFEU, as regards proof of the existence of an advantage.
It follows that, in order to determine the existence of such an advantage, the Commission was required to examine, in the decision at issue, exclusively the ‘aid scheme’, and not the ‘individual aid’ granted on the basis of that scheme.
Thus, the fact that the Commission erroneously found that aid was granted individually is not a relevant fact to be taken into account by EU courts to determine the existence of an advantage. In those circumstances, therefore, the General Court was wrong to find such a fact to be relevant.
In the second place, the Court found that the examination under Article 107(1) TFEU, including therefore that of advantage, must be assessed with reference to the time of adoption of the scheme in question, by carrying out an ex ante analysis and may not depend on circumstances that take place after the adoption of the scheme.
It follows that the Commission was not required to examine, in the decision at issue, the effect of the deduction for reinvestment of extraordinary profits or if the deduction would neutralise the advantage resulting from the reduced tax rate.
Accordingly, it must be held that, in ruling, the Commission was obliged to carry out such an examination, and as such, the General Court erred in law.
The Court further held that the aid scheme at issue was, from the time of its adoption, liable to favour the clubs concerned, by operating as non-profit entities over clubs operating in the form of public limited sports companies, thereby conferring on them an advantage capable of falling within the scope of Article 107(1) TFEU.
So the Court of Justice of the European Union set aside the General Court ruling and confirmed the Commission’s decision that the tax scheme of the four football clubs constitutes State aid.
Author: Krisztina Széles, PhD student, University of Debrecen, Faculty of Law