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The tax debate concerning the licensing of image rights

24 Jul 2013

Probably one of the largest bones of contention over the last 2 decades in the area of personal taxation, particularly in connection with professional sportspersons, has been the tax treatment given to income from licensing image rights. Taxand Spain discovers how the use of companies can lighten an individual's tax burden in this situation.

The characterisation for tax purposes of income from the licensing of image rights is a matter which has given rise to fierce debate in tax circles, so much so that Spanish tax legislation was amended in 1996 with a view to enabling sportspersons to exploit their image rights through companies, provided that certain requirements were met.

The use of companies for the exploitation of image rights, as critically described by the Judicial Review Chamber of the Supreme Court in its judgment of 10 July 2008, as follows:

Underlying the transaction are certain common interests, ie, of the player and the club, the aim of which is to seek the most advantageous tax treatment, since the licensing and purchase of image rights through interposed companies as a method of remunerating the activities pursued by the player and club reduces the progressive nature of personal income tax by transferring a part of the income receivable by players to a company that holds their image rights, thereby paying part of the income which would have been paid as salary or which would at least have been stipulated under the ordinary contractual relationship between the player and the club.  

This transaction also serves to distribute the income obtained from the club among the shareholders of the company, which the player usually controls and of which members of his personal circle form part, thus again reducing the progressive nature of the tax. This also avoids the treatment of such amounts (which would otherwise be received by the players directly) as salary income or income from professional activities, thus circumventing the tax that should be withheld from them.”

The Court also pointed out 3 basic criteria for the characterisation of this type of income:

  • Payments for a player’s image rights by a third-party entity or company are presumed to be compensation of the soccer player (characterised for tax purposes as salary income)
  • Where the image rights have been licensed to the club in the employment contract itself, there is no doubt as to its nature as salary
  • Such amounts are salary income even where they are paid to a company

Discover more: The tax debate of the licensing of image rights

Your Taxand contacts for further queries are:
Ricardo Gomez
T. +34 915145200

Jose Maria Cobos Gomez

Taxand's Take

In order for the exploitation of image rights through a company to be possible, the player must previously have licensed such rights to the company. Two issues must be considered in connection with the licensing: first, the player’s liability for personal income tax, requiring an analysis of his possible eligibility for the reduction due to the multi-year nature of the income and of the potential indirect taxation implications. Secondly, and closely connected with the aforementioned, the characterisation of such licensing as a related-party transaction, since the player himself will be the principal shareholder and/or director of the licensee, meaning that the licensing must be priced at 'normal market value' (ie, the value which would have been agreed by independent persons or entities at arm’s length) and the transaction must be suitably documented if the thresholds stipulated in the corporate income tax legislation are overstepped.

In short, the design of any arrangement for the exploitation of image rights must be examined carefully, with a view to anticipating all its legal implications, whether from a tax or any other standpoint.

Taxand's Take Author

Ricardo Gomez
Taxand Board member