SPAIN: An Introduction to Sport

The Tax and Employment Situation in the Spanish Sports World

A country with sui generis labour regulations

Spain is a country where athletes employed by a third party are governed by two specific rules that are both significantly different from the current trends in other countries’ employment regulations and somewhat outdated.

Royal Decree 1006/85 regulating the special employment relationships of professional athletes and the applicable collective bargaining agreements

In the 1980s, Royal Decree 1006/85 established certain rules to specifically regulate the employment relationships of professional athletes. This regulation, novel at the time, is completely different from the employment regulations established in other European countries.

Below is a summary of this regulation, focusing on the divergent issues that every athlete arriving in Spain should know about.

Salary insurance in the event of injury 

Spain is a country where athletes do not need to take out private insurance to cover contingencies arising from sick leave. This is because standard Spanish social security regulations are very advantageous for them as they guarantee, via collective bargaining agreements, 100% of the salary in the event of injury, even for injuries of long duration.

Compensation for the athlete in the event of temporary assignment or permanent transfer

The athlete is entitled to a share of the transfer paid, whether national or international. The compensation is considered to be salary and is not of a compensatory nature. In the absence of an agreement, the athlete will be entitled to receive 15% of the transfer price. That said, the truth is that, in practice, all clubs try to make athletes waive said compensation.

Severance pay 

When an athlete signs an employment contract in Spain, he or she must bear in mind that Spanish regulations do not guarantee payment of all the sums established in the contract in cases of early and unjustified termination. According to the Law, this severance pay will be established by the parties and, in the absence of an agreement, it will be decided by a judge – with a minimum of two months of salary per year of service. Furthermore, in the event of an economic crisis, the severance pay may be even lower – up to 20 days per year of service.

In cases of justified dismissals, the athlete may be liable for the damages caused by said termination.

Arbitration in employment matters is very restricted 

The vast majority of contracts are submitted to ordinary labour courts and not the FIFA Football Tribunal or the Court of Arbitration for Sport. Under normal circumstances, arbitration clauses in employment contracts are null and void.

Buy-out clauses 

Employment contracts of athletes usually contain a buy-out clause; if a player (or their new club) pays the compensation amount established in the contract, he or she may be transferred to another club. Provided that certain circumstances apply and certain requirements are met, payment of this compensation does not imply tax costs, even if the payment is made by the new club on behalf of the player (salary paid in kind).

Tax-related news  

In Spain, athletes may be taxed at different income tax rates depending on the region where they reside. Madrid is the Autonomous Community with the best tax rate (45%) while rates in Catalonia and Valencia, among others, reach almost 50%. Nevertheless, there are some tax advantages that apply to the years when the athlete arrives in and leaves Spain: the tax rate can be reduced to 19% or 24% in those financial years.

It is also worth noting that there are two ways to tax Spanish residents’ wealth: the wealth tax and the recently implemented solidarity tax, both applicable to people with assets worth more than EUR3 million. These taxes amount to up to 3% of those assets per year.

Finally, it should be noted that in Spain athletes are not allowed to deduct the invoices for the fees they pay to their agents, lawyers and advisors, therefore, they have to pay these amounts from their net salary, normally including VAT, without being entitled to deduct these, arguably necessary, costs.

The new Sports Law 

On 22 December 2022, the lower house in the Spanish Parliament (Congreso de los Diputados) passed the new Sports Law (“Law 39/2022”), which entered into force on 1 January 2023, repealing the previous sports law (Law 10/90), which had been in force for more than 22 years.

The new Law recognises sports and physical activity as essential activities for all citizens that require special attention and protection from the public authorities.

Article 43.3 of the Spanish Constitution mandates that public authorities shall foster health education, physical education and sports as one of the guiding principles of the nation’s social and economic policy, and Article 2 of the new Sports Law establishes it as a right: “All persons are entitled to practice physical and sporting activity, freely and voluntarily, pursuant to this Law.”

Also noteworthy is that this Law seeks to promote effective equality in sports between men and women and intends to facilitate the integration of all athletes under the same federation.

It applies to professional athletes (who were the only regulated class of athlete in the aforementioned Royal Decree 1006/1985), non-professionals, elite and high-performance athletes, including, for the first time, the rights and obligations they have in accordance with their different conditions.

Controversies 

The Sports Law is not without some controversial aspects, it has been criticised for signifying not only a radical change in the concept of sports in Spain, but also for abolishing the sports justice system outlined in the General Law of Physical and Sports Education, of 31 March 1980, which was better defined and improved in Law 10/1990.

Under Law 10/1990, the sports federations, considered for the first time as private entities with delegated public functions, exercised, through their disciplinary committees, discipline over the persons and entities belonging to these federations.

After exhausting the federation channel, the sanctions imposed could be appealed before an independent administrative body of the Spanish National Sports Council: the Sports Administrative Court (TAD). The TAD specialised in sports conflicts, was free of charge and operated a fast-track and streamlined procedure (in some cases where injunctive relief was necessary, the decision was obtained in just a few hours).

The new Law (i) eliminates, in essence, the public nature of sports discipline; (ii) reduces the powers of the TAD; (iii) if so-determined by the federations or professional leagues, allows the creation of an out-of-court system for the resolution of conflicts, private and voluntary, that will only be free for athletes; and (iv) if these bodies are not established, mandates that the civil jurisdiction shall be competent.

In other words, it has gone from a free public-administrative system to a private, fee-paying one (except for athletes); this has been highly criticised, even if it is more in line with what happens in most countries and at international level, where sports administration is not public.

Another controversial issue has been the disappearance of the obligation, on clubs that participate in official and professional state-level competitions, to convert into Public Limited Sports Companies; this stricture applied only to first and second division men’s football and first division women’s football teams, and first division men’s basketball teams and an exception was made for those that maintained their legal form as they had a positive net asset balance during the seasons before the enactment of Law 10/90. Only four clubs met these requirements: FC Barcelona and Real Madrid in football and basketball, and Athletic Club de Bilbao and Osasuna in football.

This measure sought to end club insolvency but, as stated in the preamble of the new Law, 32 years after the entry into force of the model implemented by Law 10/90, the clubs still have high debt rates, given that insolvency was an endemic problem, especially in professional football, whose recovery has been due to other factors that have nothing to do with the exclusion of other legal forms for participation in this kind of competition.

For all these reasons, and since the legal basis of the mandatory conversion was unjustified, it was decided to open participation to both clubs and Public Limited Sports Companies, expanding the aforementioned model (which, on the other hand, had been widely criticised by the doctrine), relying on other financial control mechanisms to be established over the clubs by the entities organising the competition to ensure long-term solvency.

To conclude this brief summary, the Law contemplates the need to create structured participation channels for organised fans of both clubs and Public Limited Sports Companies, in any sport where these organised fans exist and where there is a high sense of community identification between sports entities and fans, following what has been stated in various regulatory documents approved by European Union institutions.