In Spain, it is permissible for a football club to exploit the player’s image in the context of the underlying employment relationship. However, there exists a ‘safe harbor’ rule as per which image rights payments made by the employer to a footballer or to his image right company should not exceed 15% of the total remuneration package as established in the employment agreement (in case of non-compliance, the whole fee is classified as employment income, subject to progressive taxation up to 50%).
Regarding the image rights company, the key point resides in determining whether the assignment of the image rights from the player to the company (both qualifying as related parties for transfer pricing purposes), or the exploitation of the image rights, is performed in alignment with market conditions reflecting the price that would have been agreed upon by independent parties under comparable conditions. If the transfer of the right to economically make use of the image rights, or the exploitation itself of the rights, do not comply with the arm’s length standard, a transfer pricing adjustment would need to be performed in the player’s taxable base.
Actually, from a transfer pricing perspective, the player is seen as a related party providing services to the company exploiting the image rights. The player must receive a compensation from the company in exchange of these services. Generally, a transfer pricing analysis is carried out based on the comparison with other companies in the market that are dedicated to similar image rights business activities. The Spanish Law provides a special rule (safe harbor) in order to reduce uncertainty: broadly, a compensation of 75% of the profits obtained by the company will be considered at market value if certain requirements are met. Among others, economic substance (e.g. personal and infrastructure) in the company is needed in order to benefit from this rule. From our experience, the tax authorities are becoming more and more reluctant to accept the application of this safe harbor rule and try to increase the amount allocated to the player (from 75% to 100%).
In any case, solid TP documentation should be in place, demonstrating that the professional services provided by the player to the company are at arm´s length.