European Court of Justice (ECJ): The Court of Justice comprising of E. Regan (Rapporteur), K. Lenaerts, President, M. Ilešič, C. Lycourgos and I. Jarukaitis, JJ., ruled against the top Football Clubs of Spain in the state-aid case. The football club of Barcelona, Atlético Osasuna, Athletic Club Bilbao and Real Madrid Club were held to be availing unlawful state-aid in the form of a preferential corporate tax rate by which they were paying 5% less tax than other football clubs.


Article 19 of Law 10/1990, on Sports, relating to Associations obliged all Spanish professional sports clubs to convert into public limited sports companies (SLCs) to encourage more responsible management of clubs. Unlike SLCs, sports clubs were non-profit legal persons which enjoy a special rate of income tax. The European Commission had took cognizance with regard to the potentially preferential tax treatment of four professional football clubs, including the applicant, when compared with SLCs contrary to Article 108(2) of Treaty on the Functioning of the European Union 1990 (TFEU). By impugned decision the Commission found that, by Law 10/1990,

The Kingdom of Spain had unlawfully implemented state-aid in the form of a preferential corporate tax rate for the applicant in breach of Article 108(3) of TFEU, 1990.

The Commission also found that the scheme was incompatible with the internal market and therefore ordered the Kingdom of Spain to discontinue it and to recover from the beneficiaries the difference between the corporate tax actually paid and the corporate tax they would have been required to pay had they been SLCs.

The issue was raised before Luxembourg-based General Court, where the Court had ruled out that the Commission had not demonstrated to the requisite legal standard the existence of an advantage falling within the scope of Article 107(1) TFEU and that allowing professional football clubs not to convert themselves into SLCs had provided an advantage to those clubs.

State-aid Defined

The Court of Justice reiterated that according to Court’s the legal position settled in Compagnie des pêches de Saint-Malo, C‑212/19, i.e. classification of a national measure as ‘State aid’, within the meaning of Article 107(1) TFEU, require the following conditions to be satisfied:

  • Intervention by the State or through State resources.
  • Intervention must be liable to affect trade between Member States.
  • It must confer a selective advantage on the beneficiary.
  • It must distort or threaten to distort competition

It was observed that national measures that confer a tax advantage which place the recipients in a more favourable financial situation than other taxpayers, were capable of conferring a selective advantage on the recipients and therefore constitute State aid, within the meaning of Article 107(1) TFEU.

Observation and Analysis

The top Court while holding that the General Court had erred in law, stated that the Commission was required only to demonstrate that the aid scheme was favourable to its beneficiaries, by ascertaining that the scheme was capable of resulting lowering the tax liability than it would have been if the general tax regime had been applied at the time of its adoption. The Commission was, thus, held to be right to find that deduction for reinvestment of extraordinary profits applicable to non-profit entities ought not be taken into account in determining whether the measure at issue conferred an advantage on its beneficiaries, on the ground that, since it was granted only under certain conditions which were not always met, that deduction was not such as to neutralise systematically, for each tax year, the advantage conferred by the reduced tax rate. The Court remarked,

“Where aid is implemented without prior notification to the Commission, with the result that it is unlawful under Article 108(3) TFEU, the recipient of the aid cannot rely at that time on a legitimate expectation that its grant is lawful.”

Further, on the argument that the existence of different tax regimes in Spain for non-profit entities and public limited companies was justified by the internal logic of the Spanish tax system, the Bench stated that the issue did not deal with existence of different tax regimes in Spanish law for non-profit entities and for public limited companies, but in implying a difference in treatment as regards access to that legal form and thus introducing a difference in the tax regime between those clubs, depending on whether they were obliged to convert into public limited companies or whether they could, by way of derogation, continue to operate as non-profit entities.

In the light of the above, the decision of the General Court in Fútbol Club Barcelona v Commission was set aside and Football Club Barcelona was ordered to pay the Commission’s costs relating to the proceedings before the General Court.[European Commission v. Fútbol Club Barcelona, C‑362/19 P, decided on 04-03-2021]

Kamini Sharma, Editorial Assistant has reported this brief.

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