Spain vs Narcea Producciones y Promociones S.L., January 2022, Tribunal Superior, Case No STSJ M 122/2022 – ECLI:ES:TSJM:2022:122

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Narcea Producciones y Promociones, S.L. (Narcea S.L.) had as shareholders Mr. Emiliano and Mrs. Filomena and their son, Mr. Ismael, a professional footballer, who had an employment relationship with the football club Hércules CF SAD of Alicante.

Narcea S.L. purportedly managed the economic rights, the representation fees and the image and TV rights of Mr. Ismael.

In relation to the image and TV rights of Mr. Ismael, the tax authorities considered that there had been a related party transaction between Narcea S.L. and Mr. Ismael where these rights had been transferred. In consideration for the transfer, the football club Hercules had paid 40,000 euros in 2010 and 80,000 euros in 2011 to Narcea S.L.

According to the tax authorities these payments should instead have been made directly to Mr. Ismael without the intermediation of Narcea S.L. Furthermore, the arrangement had resulted in a fiscal advantage since the CIT rate was much lower than the personal income tax rate.

The tax authorities issued an assessment where the income was allocated to Mr. Ismael and taxed as personal income.

Not satisfied with this decision Narcea S.L. filed an appeal.

Judgement of the Tribunal Superior

The Tribunal dismissed the appeal and decided in favor of the tax authorities.

“In accordance with Article 16.1.1 and 2 and 4.1.a) of the TRLIS, related-party transactions shall be valued at market price between independent parties in conditions of free competition and this allows the tax authorities to check this valuation and make the corresponding valuation corrections with regard to transactions subject to Corporate Income Tax, Personal Income Tax and Non-Resident Income Tax, with the limit of not determining a higher income than that effectively derived from the transaction for all the persons or entities that have carried it out and the value that is set is binding for the former in relation to the rest of the related persons or entities.
In this case there has been a lower taxation than that which would have resulted from valuing the transaction at market price, considering that there was no remuneration whatsoever by the company to the member for the transfer of his image and TV rights compared to the value paid by the football club to the plaintiff company for said transfer.
In relation to the valuation itself, among the means provided for this purpose by the Law, is the method of the free purchase price, article 4.1º.a) of the TRLIS, which in this case has been applied by the Inspectorate, taking as the value of the transaction the amounts received for the transfer of the image and TV rights, deducting the expenses necessary to obtain them, taking into account the percentage represented by the amounts paid by Hercules for the transfer with respect to the total income obtained by the company and the total expenses.
The Inspectorate, in our opinion correctly, after analysing the peculiarities of the service provided, which takes into account the personal qualities of the partner and is the reason why the service is contracted, the assumption by the partner of the service and of the main risks and the characteristics of the market, applies the method provided for in article 16.4.1º. a) of the TRLIS, taking as market value between independent parties and in free competition the amounts received by the company that were agreed with Hercules for the transfer of the image and TV rights of the professional footballer partner, corrected with the deduction of the expenses that were necessary to obtain them, duly accredited, without the presumption of having valued the operation at market price being applicable in this case, as the requirements established in article 16. 6 of the RIS, as the company lacked the material and human resources to provide the services beyond the shareholder and did not remunerate the latter in any amount for such a transfer.
This valuation method as applied by the tax authorities complies with the OECD transfer pricing guidelines of 22/0/2010, as the characteristics of the services, the functions and risks assumed by the parties, the contractual terms of the transactions and the economic circumstances of the market were taken into account.
According to the appellant, the valuation method applied does not satisfy the comparability requirements of the method of Article 16(4)(a), because no basis for comparison is taken, but it is the value agreed between independent parties consisting of the amount which each year the football club was prepared to pay for the transfer of the image and TV rights of the footballer, a single person for that purpose without any comparable.
Furthermore, the legal qualification made by the Inspectorate of the business carried out as a related transaction is correct as has been seen for the purposes of Article 13 of Law 58/2003 and it was not necessary to resort to the figure of the relative simulation of Article 16 of the same Law, which requires an appearance of a business other than the real one and wanted by the parties, nor the conflict in the application of the rule, whose requirements are not met given the wording of Article 15 of the same Law, which requires that the transactions are notoriously artificial or improper for the result obtained and that they do not result in relevant legal or economic effects other than the fiscal savings and the effects of the usual or proper transactions.”

“That, we dismiss and reject the contentious-administrative appeal number lodged by the procedural representation of the entity Narcea Producciones y Promociones, S.L., against the decision of 29/10/2019, issued by the Regional Economic-Administrative Court of Madrid, rejecting the accumulated economic-administrative claims numbers NUM000 and NUM001 , respectively, filed against agreements reached in reconsideration by the Regional Inspection Unit of the Special Delegation of Madrid of the State Agency for Tax Administration, by means of which the appellant company was assessed for corporation tax for the years 2010 and 2011, arising from the non-conformity assessments A02- NUM002 , which includes the valuation adjustment of the related transaction and A02- NUM003 , relating to the whole of the adjustment made, on the ground that the contested decision is in accordance with the law. The appellant is ordered to pay the costs of the proceedings.”

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Spain vs Promo STSJ_M_122_2022

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