New and last chapter in the long litigation of Gerard Piqué with the treasury: the Supreme Court has agreed with the footballer and has annulled the fine of 2.1 million euros that the Treasury claimed. The decision of the Contentious-Administrative Chamber thus settles a controversy that started in 2013, when an inspection by the Tax Agency of Catalonia determined that the FC Barcelona defender had used a company to pay less taxes.
The treasury reached this conclusion after reviewing the player’s income statements for 2008, 2009 and 2010 ―Piqué had obtained income from work as a professional footballer resident in Spain from Real Zaragoza, Manchester United and the Spanish Football Federation―, and concluded that the athlete had simulated the transfer of image rights to his business conglomerate Kerad Project. The objective: that the income obtained will be taxed by corporation tax instead of personal income tax, which has a higher tax rate. The Treasury also considered the payments of FC Barcelona simulated by the player’s representation agency IMG.
This inspection was part of the offensive that the Tax Agency launched a little less than a decade ago against the tricks of footballers to pay less taxes, as a result of a legal change in 2006 regarding related-party transactions. Among the maneuvers that have been under scrutiny since then are the companies that manage image rights or the commission that some clubs pay to agents when deciding to transfer or renew players.
Piqué answered the liquidation of the Tax Agency, but the Central Economic-Administrative Court (TEAC) rejected his claim and sentenced the footballer, in a 2016 resolution, to pay 1,457,855.61 euros in back taxes, plus another 678,012.59 euros in fines. The forward did not give up and appealed to the National Court, defending that the contract he had signed in 2006 with Kerad Project was not a simulation to defraud the treasury. But the balance tipped once more in favor of the Treasury: the National High Court rejected the appeal.
The footballer then used the last weapon he had: the appeal, which the Supreme Court admitted for processing in 2020. The high court did not question the nullity of the assignment, but emphasized two other issues to reopen the case. He pointed out that it was necessary to consider whether the Social Security contributions paid in another EU State are deductible in personal income tax and whether, after declaring the nullity of a business for the transfer of image rights, the income received from such transfer without corporate intermediation they can be viewed as returns on capital or should be treated as economic activities.
Social Security contributions
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The contributions paid by Piqué when he played for Manchester United had been taken by the club from the footballer’s monthly payrolls to meet the English equivalent of Social Security. “It should be understood that we are, like the Social Security contributions, facing legally imposed coercive obligations as a result of the development of employed work,” says the Supreme Court. “Contributions paid to Social Security -or social insurance management entities- in another State of the European Union, when they are mandatory for workers, should be considered as a deductible expense from work income in Income Tax of Natural Persons ”, he adds.
Regarding the transfer of image rights, the Supreme Court underlines that in the “business network” of Kerald Project – majority owned by Piqué himself – there was another minority partner, the footballer’s brother, in charge of organizing and managing the related tasks to the athlete’s image rights. The National Court, after considering the contract with the company void, had been inclined to consider the income obtained from the transfer as capital returns.
The Supreme Court notes that the same Inspection, when reviewing the years from 2011 to 2014, concluded that it was a question of income from economic activities, and alleges that in the contracts signed by the entity there are agreed “contractual obligations that exceed what is the mere exercise and exploitation of image rights, constituting an activity that requires the organization of personal resources, let us remember that a person was in charge of the organization to exploit these rights, and materials, since an activity that transcends the mere use and exploitation of the appellant’s image by third parties ”.
Therefore, it annuls the judgment of the National Court and upholds the appeal in the aspects related to the contributions to the English Social Security and by the business network that managed the image rights of the footballer, which implies the nullity of the required settlement by the treasury and the penalty attached to it.