State aid in Spanish football - EU General Court overrules European Commission on Barcelona and Real Madrid decisions

Published 19 August 2019 By: Benoît Keane

Spanish Football

On 4 July 2016, the European Commission hit a number of Spanish clubs – Real Madrid and FC Barcelona being the most prominent – with State aid decisions finding that they had received illegal subsidies.1 There were in fact three separate cases concerning alleged tax breaks, property transactions and loan guarantees that were all wrapped up in what broadcaster Sky Sports might have billed as “Super State Aid Day”.2 For the full background to these decisions, please see the author’s 2016 analysis, available here3.

The EU General Court has however now reversed two of these decisions in a series of judgments this year.  This article provides an overview of the rulings to date and what lessons sports organisations can draw from them. Specifically, it looks at:

  • A primer on EU State aid law.

  • FC Barcelona’s appeal – relating to the "selective advantage" they were deemed to receive via their exemption from the new Spanish sports tax regime.

  • Real Madrid’s appeal – relating to the "Las Tablasproperty deal, wherein a land swap with Madrid City Council was deemed to constitute State aid.

A primer on EU State aid law 

At the heart of the EU State aid rules lies the principle that fair competition within the European Union would be undermined if certain enterprises (or “undertakings”) are given an advantage over rivals through public subsidies. Any State aid above the de minimis threshold4 which is granted by a Member State must either conform to the exceptions set out in EU regulations or be individually notified to the European Commission for approval.

There are five elements to demonstrating a State aid:

  1. There must be an intervention by the State or through State resources, such as a Government department or public authority.

  2. There must be an advantage.

  3. That advantage must be selective.

  4. It must distort competition.

  5. Fifth, it must affect trade between the EU Member States.5

Specifically, Article 107 of the Treaty on the Functioning of the European Union (TFEU) prohibits:

any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the internal market”.

Aid need not necessarily be in the form of a subsidy or grant of funds. It can take a wide range of forms including tax breaks, State-backed bank guarantees, property transactions (sale by the State at undervalue or to the State at over market value), offsetting of tax or social security etc.

Often the key issue to determine in a State aid case is whether a “selective advantage6 has been conferred upon the undertaking concerned. According to the European Commission, “an advantage is any economic benefit which an undertaking could not have obtained under normal market conditions, that is to say in the absence of State intervention.”7 (Recital 66).

Economic transactions carried out by public bodies (including public undertakings) do not confer an advantage on its counterpart, and therefore do not constitute aid, if they are carried out in line with normal market conditions. This principle – known as the Market Economy Operator (MEO) test – is applied to assess whether the State has granted an advantage to an undertaking by not acting like a market economy operator with regard to a certain transaction. For example, if the State sells land at undervalue to an undertaking then it is not acting as a market economic operator with the result that the purchaser of the property has received an advantage over its competitors which it would not have obtained under normal market conditions.8

It is not sufficient for there to be just an advantage; after all, if all undertakings benefit from the same measure then there is no harm to the market. To fall within the scope of Article 107(1) TFEU, a State measure must favour “certain undertakings or the production of certain goods”. Hence, only those measures which grant an advantage in a selective way to certain undertakings or categories of undertakings or to certain economic sectors may constitute State aid. Such selectivity may be de jure (occurring in accordance with the law) or de facto (occurring in fact).9

In the case of aid to sport, the Commission has set out new exceptions for support to professional sport (such as infrastructure) in the General Block Exemption Regulation and has also confirmed that State aid for the support of amateur sport is unlikely to fall within the scope of the State aid rules (Recital 74).10 The Commission has the power to investigate any transaction where there is a suspicion of illegal State aid or, as in the Spanish football cases, following the receipt of a complaint by the public or competitors.

Barcelona’s appeal relating to the Spanish sports tax regime decision

The Spanish Sports Tax regime and its "selective application"

The Spanish sports law of 199011 obliged all Spanish professional “sports clubs” (clubes deportivos) to convert into “sports limited companies” (sociedades anónimas deportivas).

However, the sports law exempted any clubs which had had a positive balance in the preceding 4 – 5 years. There was no possibility for sports limited companies to convert back to the status of sports club. Whilst no specific clubs were mentioned in the legislation, Real Madrid, FC Barcelona, AC Bilbao, and CA Osasuna met the conditions for an exemption and, consequently, could remain as sports clubs. All other Spanish football clubs were required to become sports limited companies.

From a fiscal perspective, the tax treatment of sports clubs differed from the tax regime applicable to sports public limited companies. Sports clubs are treated as non-profit entities (Entidades Sin Animo De Lucro) and qualified for a partial corporate tax exemption according to the Spanish Corporate Tax Law (Ley del Impuesto sobre Sociedades) giving them a lower tax rate as compared to other football clubs registered as sports limited companies (25% for sports clubs as compared to, at its highest, 35% for sports limited companies12).

The conferring of a "selective advantage" on FC Barcelona et al

For the purposes of establishing selectivity in tax cases, as a first step, the common or normal tax regime applicable in the relevant tax jurisdiction must be identified (the so-called “reference system”).13 As a second step, it must be shown that the tax measure at issue derogates from that reference system, in so far as it differentiates between operators who are in a comparable factual and legal situation. If it does, the measure is then regarded as being prima facie selective. It must then be verified, in the third step of the test, whether the differentiation is justified by the nature or general structure of the relevant tax system.14

In its decision15, the European Commission found that the four Spanish clubs benefitted from a selective advantage. The Commission concluded that given the “considerable taxable revenues for the last years” of the clubs concerned that “a different tax rate of 25% instead of 30% may lead to economic advantage against its competitors”.16

In coming to this finding, the Commission established that the common reference taxation system is for professional sport clubs in Spain.

  • It found that the taxable income of certain professional football clubs derogates from the reference system because it is taxed pursuant to a different tax regime, with a lower rate, than that of other such entities.17

  • Accordingly, the Spanish tax law establishes a prima facie selective advantage in favour of sports clubs as compared to sports limited companies.

  • The Commission also labelled the selective advantage as a de facto one given that it resulted in four clubs benefitting from the lower taxation rate.18 It considered there to be no justification for the differentiation in treatment, stating “differences in the economic performance cannot justify different treatment as regards the obligatory form of organisation which results in a different taxation”.19

  • As a consequence of its decision, the European Commission ordered Spain to assess and recover (with interest) the amount of aid each of the Spanish clubs concerned as a result of the tax benefit.20

FC Barcelona’s appeal

The key claim of FC Barcelona in its appeal was that the European Commission failed to examine the tax regime as a whole – not just with respect to the applicable tax rate – in its determination of whether the lower tax rate conferred a selective advantage to the four clubs. In particular, the Commission failed to take account of the fact that the tax regime was a lot less favourable to sports clubs than to sports limited companies.

FC Barcelona stressed that fiscal deductions were very important in the football sector, notably with respect to the transfer of players (referencing evidence provided by Real Madrid during the investigation).21 The Catalan club also claimed that the Commission had committed a manifest error of assessment in the data that it relied upon in coming to its conclusion of proof of an advantage.

EU General Court’s decision

In its judgment of 26 February 201922, the EU General Court recognised that there was a nominal difference in the applicable tax rate to sports clubs and sports limited companies.23 However, it agreed with FC Barcelona that there had been a manifest error of assessment in its analysis of the data upon which it found there to be an advantage.

It found that the Commission had relied upon data applicable to all sectors of the economy – not just football clubs. Moreover, the data only covered four years whereas the Commission’s decision found the advantage to exist for a much longer period from 1990 to 2015.24

As such, there was insufficient support for the finding in the Commission decision that in most years the effective taxation of professional football clubs taxed as non-profit organisations was lower than that of comparable entities under the general tax regime.

The importance of the specificity of the sector concerned

Nor could the Commission rely upon other elements to save its finding of an advantage. Turning to the key issue in the case, the EU General Court stated that the examination of the advantage arising from the preferential tax rate cannot be separated from the other elements of the tax regime for non-profit entities.25 The Court found that the European Commission had failed to take into account elements highlighting “the specificity of the sector concerned” relating to the importance of fiscal deductions.26

It observed that Real Madrid had pointed out during the investigation that the tax deduction for the reinvestment of extraordinary profits was higher for sports companies than for non-profit sports clubs. This deduction was potentially very significant due to the practice of player transfers, as profits could be reinvested in the purchase of new players. Real Madrid had provided evidence showing that the tax regime applicable to non-profit organisations had been, between 2000 and 2013, significantly more disadvantageous to it than that applicable to sports limited companies. As the Commission did not adequately assess this evidence highlighting the specific nature of the sector as regards tax deductions, the Court ruled that it had failed to prove to the requisite standard that an advantage had been conferred upon the four sports clubs.


Consequently, the EU General Court annulled the Commission’s decision with respect to the challenge brought by FC Barcelona. The Commission did also obtain a symbolic victory against AC Bilbao which had not raised the same pleas in law as FC Barcelona in its appeal (and the two other clubs concerned did not appeal). It also successfully dismissed a claim by FC Barcelona that it ought to have examined whether the Spanish tax law was contrary to EU law.27

An appeal has now been lodged by the Commission before the European Court of Justice so a comeback remains possible.28 According to the notice of the appeal, the Commission is claiming that the EU General Court erred in its interpretation of the concept of the advantage of State aid and the Commission’s duty to assess whether there is such an advantage.

In particular, the Commission is challenging the finding that it was required not only to assess whether a particular tax regime confers an advantage on its beneficiaries but also “unfavourable elements caused by variable circumstances outside the regime in each tax year, even when those unfavourable elements are uncertain and cannot systematically negate the advantage and that, furthermore, they cannot be foreseen in an ex ante review of the regime”.

Analysis and lessons for sports organisations

The application of State aid rules to tax regimes has become one of the most controversial EU legal developments in recent years. It has even gained the attention of the current US President, who referred to the EU Commissioner for Competition, Margarete Vestager, as the EU’s “tax lady”.29 Moreover, the area is notoriously complex and uncertain: a number of decisions of the European Commission have been overturned by the EU General Court only to be then reinstated by the European Court of Justice showing a divergence in views as to the limits of State aid law in this sphere. As such, there remains much to play for in the final leg of this case.

The key issue now is whether the Commission should be obliged to look at all elements of a tax regime. This could be said to be a Sisyphean task as it places an impossible burden upon the Commission to investigate all elements of a tax regime – and doubtless this will be the Commission’s main point of appeal. However, the General Court’s judgment is arguably narrower than that. It does not require an in-depth review of all elements of the tax regime but rather a focus on key elements affecting professional football. This approach is consistent with a long line of case law that requires the EU institutions to have regard to the specific nature of sport when applying EU law.

The decision of the Commission, however, limited its assessment of the specific nature of sport to just the most cursory of references30 with no serious regard as to how professional football operates. It is well known though that the football players and the transfer of football players constitute the most important operating costs in running a professional football club. However, there was no serious impact of the analysis of the impact of transfers upon the tax regime, with the Commission even questioning the regularity of transfers during the oral hearing – a point that the Court dismissed as being unsubstantiated in the decision.

The fact remains that the Commission was presented with serious evidence showing that sports clubs obtained less beneficial tax benefits with respect to such important costs than sports limited companies that neutralised the benefits of any tax rate. It is only reasonable that, given the specific characteristics of the sports sector, that this key issue should also form part of its assessment to determine whether sports clubs and sports limited companies are in a comparable fiscal position. Sometimes being different does not mean that one system is more beneficial than the other. The reasoning of the EU General Court appears sound given the specificities of sport and football in particular.

The lesson from the Spanish sports tax system is a simple one. If clubs could move voluntarily between one system or the other then it is unlikely that any case would ever have been brought. The problem was the closed nature of the tax measure, which aroused suspicions as to the motives of the Spanish authorities. Sports organisations would be well advised to ensure that any fiscal regime remains open to all with each free to choose the merits and downsides of a particular legal status under tax rules.

Real Madrid’s appeal against the ‘Las Tablas’ decision

After losing the appeal by FC Barcelona against its finding that the tax regime for sports clubs constituted a State aid, the next blow for the European Commission came from Real Madrid when the EU General Court accepted their appeal and annulled a finding of State aid linked to a property transfer.31


The case concerned the very different issue of a property transaction relating to the exchange of a plot of land zoned for "basic sport use" (plot B-32) by the Madrid City Council in the ‘Las Tablas’ district in return for land owned by Real Madrid around the Bernabeu stadium.32 For the purpose of the proposed swap in 1998, the City authorities estimated the value of the plot at EUR 595,194. However, it transpired that it would be “legally impossible” to implement the swap due to a ruling of the Spanish courts that land designated for "basic sport use" could only be owned by public authorities – not private entities such as Real Madrid.33 In July 2011, the Madrid City Council entered into a settlement agreement with Real Madrid to exchange other plots of land and offset other mutual debts for plot B-32.

For the purpose of the State aid case, the most important point to note is that the City authorities increased the valuation for plot B-32 to EUR 22.6m – an increase of over EUR 22m in just thirteen years.34

The European Commission’s decision

Following an in-depth investigation, the Commission concluded that Real Madrid had benefitted from State aid, having conducted its own valuation of the plot and reaching a valuation of just EUR 4.275m.35

In particular, the Commission considered that a market economy operator would have sought legal advice before entering into the 2011 settlement agreement so as to establish likelihood of liability for the failure to transfer the original plot.36

The EU General Court’s decision

Obtaining external legal advice

Real Madrid, with Spain’s support, contested the Commission’s approach arguing that there was no obligation upon the City to obtain external legal advice to determine the liability for the failure to transfer the plot.

The EU General Court disagreed. It observed that Madrid City Council as well as Real Madrid were aware at the time of the initial proposed swap that the City was not the actual owner of the plot (it was owned by another public body at the time) and that it was registered only for "basic sport use" so would have to be declassified for other use by Real Madrid. As such, the Court accepted the Commission’s finding that there were legal uncertainties over the liability of Madrid City Council.

The General Court stated that Madrid City Council could have relied upon “any legal analysis”. No evidence had been provided to suggest that the Commission only meant external legal analysis.37 The fact remained that “no legal analysis as to the city council’s liability .... was communicated to the Commission”.38 The General Court considered that the Commission was right to find that “a prudent market economy operator ... would have sought legal advice before signing the 2011 settlement agreement and accepting full liability for the impossibility of transferring plot B-32”.39

Manifest error in calculations

However, Real Madrid contested not just the consideration of the legal advice as a relevant factor but also claimed that there had been a manifest error by the Commission in the way it calculated the amount of the advantage. The settlement agreement concerned both the acknowledgement of the debt resulting from the non-transferral of plot B-32 as well as the transfer of other plots in its place and the offsetting of mutual debts.

The General Court agreed noting that the alleged State aid was not restricted merely to the acceptance of debt resulting from the non-transferral of plot B-32 but to the possible existence of State aid stemming from the compensation granted by Madrid City Council under the 2011 settlement agreement.

However, the Commission had not carried out a valuation of these other plots. It was quite possible that these plots had been overestimated in value (in favour of Madrid City Council). Consequently, the Commission had not proven to the requisite legal standard that there had been an advantage to Real Madrid. On this basis, the decision was annulled meaning that Real Madrid is no longer required to pay back any alleged State aid resulting from the transaction.

Analysis and lessons for sports organisations

It remains to be seen whether the Commission will appeal the judgment. At first sight, the Commission would seem to have decent grounds to do so given that it had merely accepted the values that Real Madrid and Madrid City Council had accepted at the time of the settlement (even if these were later disputed). In any event, an appeal is unlikely to change the immediate reaction of the European Commission to the judgment which will be to quiz Real Madrid and Spanish authorities as to the value land transferred in exchange of plot B-32. As such, the victory may well transpire to be a Pyrrhic one for Real Madrid, with the whole case just being re-opened for further investigation.

The lesson for sports organisations is that it is essential when dealing with public property to obtain an independent valuation of any site being transferred (if it is not being sold by public auction). Otherwise there is a risk of claims of undervalue. The case also highlights one of the peculiar elements of State aid – often it is the private entity dealing with the public authority which has to insist upon the precautionary measures. In this case, it would have been prudent for Real Madrid to insist that the Madrid City Council obtain legal advice or an independent valuation of the sites before the transfer as part of the settlement agreement.

Concluding remarks

When the decisions of the Commission were first announced, it sent a seismic tremor through the sports sector. It became clear that professional sport could no longer ignore the application of State aid. However, the EU General Court judgments show that the Commission likewise should not lose sight of the specific characteristics of sport when applying State aid principles.

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Benoît Keane

Benoît Keane

Benoît Keane specialises in European sports law. Based in Brussels, he acts in cases before the European Commission and European Court of Justice as well as in cases before national courts where there is an EU law dimension. He has participated in many of the leading European sports law cases of recent years, including the competition law cases relating to financial fair play, third party ownership and sports eligibility rules. He has also appeared as a legal expert on EU law before the Court of Arbitration for Sport.