11 November 2009 ~ In recent years, generous tax breaks have been a key factor in encouraging players to move to Spain. But that may be about to change. 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. This law was specifically applicable to non-Spanish residents earning an annual salary of €600,000 (£537,000) or more and therefore included footballers. This has provided clubs in Spain with a selling point with which to attract overseas players and given La Liga competitive advantage over much of the rest of Europe.
Where foreign imports in Germany, Italy and France were paying 45 per cent, 43 per cent and 40 per cent income tax respectively – the rate was 40 per cent in England, although this will increase to 50 per cent from April next year – in Spain they were only being asked to pay 23 per cent. This was also beneficial for the Spanish clubs 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 Kaká wanted an annual salary of £8 million after tax, it would cost 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. Over the course of a five-year contract that's a cumulative difference of about £30m.
This has been very expensive, too, for the Spanish government. 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. The new law proposes that the tax bracket for these high-earning overseas players should be raised to 43 per cent. If approved, the changes will take effect at the beginning of January 2010.
Unsurprisingly, the plans have caused much irritation among 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 after-tax salary guarantees making it increasingly impossible for clubs to afford such players. Supporters of the new law argue 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.
Realistically, however, the new proposal is unlikely to do more than marginal damage to La Liga. Firstly, because it will not be implemented retrospectively, the law will not affect players who have already signed contracts with Spanish clubs. So players as Kaká 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, with the new tax rates roughly on par with the rest of Europe, the Spanish league is still in a relatively good position and is not 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 is unlikely to affect them 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 and Tenerife. So while the new law may end up costing the “super” clubs the most, it is also the case that they can afford it the most. Given 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 much of a negative effect. Isidore Lewis