If you drive a car, he’ll tax the street. If you try to sit, he’ll tax your seat. What the late George Harrison didn’t tell us about the Taxman, however, is that if you are a footballer, you will no longer be eligible for the generous tax breaks that have, up until now, been a key factor in encouraging players to move to Spain.
In 2004, the Spanish Government passed a law to lower the tax bracket for high-level ‘foreign executives’ working in the country in an attempt to attract multinational corporations and more of the world’s top professionals to Spain. This law was specifically applicable to non-Spanish residents earning an annual salary of €600,000 or more. This, therefore, included footballers.
Up until now, this has had a favourable impact on football in Spain, providing clubs with a selling-point in which to attract overseas players and, thus, also providing them with a competitive advantage over much of the rest of Europe.
Where foreign players in Germany, Italy and France were paying 45%, 43% and 40% income tax respectively – the rate was 40% in England, although, this will now increase to 50% from April next year – in Spain they were only being asked to pay 23%.
Naturally, this was beneficial to the players in question, who were able to pay significantly less in tax than their counterparts in Europe’s other big leagues, notably that of Italy and England. Yet, this was also beneficial for the clubs in Spain whose marginal costs – relating to players’ salaries – were significantly reduced, especially because many footballers nowadays command contracts based on after-tax salary demands.
To put this into context, this meant that if a player like Kaka wanted to earn an annual salary of, say, £8m after tax, it would cost his club – Real Madrid – just over £10m a year. However, if Chelsea were to offer him the same deal next year, it would cost them about £16m a year. Needless to say, over the course of a five-year contract and a cumulative difference of about £30m, this becomes very expensive.
Very expensive, too, for the Spanish Government. Indeed, after five years of shortfall in public revenue, an agreement is now in place to scrap this rule and start taxing footballers at a rate that is more in line with the rest of Europe.
Consequently, the new law proposes that the tax bracket for these high-earning overseas players should be raised from 24% to 43%. Subject, of course, to parliamentary approval.
Unsurprisingly, the plans have caused much irritation amongst Spanish clubs, the majority of whom argue that the new tax bracket will discourage foreign players from coming to La Liga. Furthermore, they argue that it is the clubs, not the players, that will end up carrying the weight of the taxes, with the aforementioned trend in after-tax salary guarantees – ‘net’ as opposed to ‘gross’ salaries – making it increasingly impossible for clubs to afford such players.
Others, however, are a little less sympathetic, arguing that the tax authorities should treat everyone equally and also that, in an institutional sense, it is the clubs’ fault for allowing players to be paid after-tax salaries in the first place.
More realistically, however, the new proposal represents little more than a marginal blow to the overall competitivity of La Liga. With this in mind, the extent of the impact surrounding such plans should be looked upon with a sense of perspective.
Firstly, because it will not be implemented retrospectively, the new law will not affect players who have already signed contracts with Spanish clubs. Crucially, this means that such players as Kaka and Cristiano Ronaldo – both of whom have recently joined Real Madrid and earn in advance of €160,000 per week – will remain exempt from the new taxation laws, at least until they sign a new contract.
Secondly, it is important to consider that the new proposal will still leave Spanish football in a comparatively good position. With the new tax rates roughly on par with the rest of Europe, this is hardly the same as being left significantly worse off.
Furthermore, the rules only apply to a minority band of well-paid ‘imports’, most of whom are being paid so much anyway that, if a club has enough money to afford them in the first place, then the relative difference in cost – relative to the overall revenue and/or cost of running such a club – is unlikely to affect them too dramatically. This is especially true in the case of clubs like Real Madrid and Barcelona although, admittedly, less so for smaller clubs such as Getafe, Tenerife and so on.
In other words, whilst the new law may end up costing the ‘super’ clubs the most, it is also true that they can afford it the most. Given, then, that the overall perception of La Liga is largely determined by the condition of Real Madrid and Barcelona – at least in a superficial sense – then the proposal is unlikely to have too much of a negative affect on the league as a collective.
In 2004, the Spanish Government passed a law to lower the tax bracket for high-level ‘foreign executives’ working in the country in an attempt to attract multinational corporations and more of the world’s top professionals to Spain. This law was specifically applicable to non-Spanish residents earning an annual salary of €600,000 or more. This, therefore, included footballers.
Up until now, this has had a favourable impact on football in Spain, providing clubs with a selling-point in which to attract overseas players and, thus, also providing them with a competitive advantage over much of the rest of Europe.
Where foreign players in Germany, Italy and France were paying 45%, 43% and 40% income tax respectively – the rate was 40% in England, although, this will now increase to 50% from April next year – in Spain they were only being asked to pay 23%.
Naturally, this was beneficial to the players in question, who were able to pay significantly less in tax than their counterparts in Europe’s other big leagues, notably that of Italy and England. Yet, this was also beneficial for the clubs in Spain whose marginal costs – relating to players’ salaries – were significantly reduced, especially because many footballers nowadays command contracts based on after-tax salary demands.
To put this into context, this meant that if a player like Kaka wanted to earn an annual salary of, say, £8m after tax, it would cost his club – Real Madrid – just over £10m a year. However, if Chelsea were to offer him the same deal next year, it would cost them about £16m a year. Needless to say, over the course of a five-year contract and a cumulative difference of about £30m, this becomes very expensive.
Very expensive, too, for the Spanish Government. Indeed, after five years of shortfall in public revenue, an agreement is now in place to scrap this rule and start taxing footballers at a rate that is more in line with the rest of Europe.
Consequently, the new law proposes that the tax bracket for these high-earning overseas players should be raised from 24% to 43%. Subject, of course, to parliamentary approval.
Unsurprisingly, the plans have caused much irritation amongst Spanish clubs, the majority of whom argue that the new tax bracket will discourage foreign players from coming to La Liga. Furthermore, they argue that it is the clubs, not the players, that will end up carrying the weight of the taxes, with the aforementioned trend in after-tax salary guarantees – ‘net’ as opposed to ‘gross’ salaries – making it increasingly impossible for clubs to afford such players.
Others, however, are a little less sympathetic, arguing that the tax authorities should treat everyone equally and also that, in an institutional sense, it is the clubs’ fault for allowing players to be paid after-tax salaries in the first place.
More realistically, however, the new proposal represents little more than a marginal blow to the overall competitivity of La Liga. With this in mind, the extent of the impact surrounding such plans should be looked upon with a sense of perspective.
Firstly, because it will not be implemented retrospectively, the new law will not affect players who have already signed contracts with Spanish clubs. Crucially, this means that such players as Kaka and Cristiano Ronaldo – both of whom have recently joined Real Madrid and earn in advance of €160,000 per week – will remain exempt from the new taxation laws, at least until they sign a new contract.
Secondly, it is important to consider that the new proposal will still leave Spanish football in a comparatively good position. With the new tax rates roughly on par with the rest of Europe, this is hardly the same as being left significantly worse off.
Furthermore, the rules only apply to a minority band of well-paid ‘imports’, most of whom are being paid so much anyway that, if a club has enough money to afford them in the first place, then the relative difference in cost – relative to the overall revenue and/or cost of running such a club – is unlikely to affect them too dramatically. This is especially true in the case of clubs like Real Madrid and Barcelona although, admittedly, less so for smaller clubs such as Getafe, Tenerife and so on.
In other words, whilst the new law may end up costing the ‘super’ clubs the most, it is also true that they can afford it the most. Given, then, that the overall perception of La Liga is largely determined by the condition of Real Madrid and Barcelona – at least in a superficial sense – then the proposal is unlikely to have too much of a negative affect on the league as a collective.
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