The National Court has ruled in favour of former FC Barcelona coach Louis van Gaal in the tax dispute he had with the Treasury regarding the tax treatment of the €4.24 million compensation he received after his dismissal in 2003.
The Tax Agency faces another judicial setback. The National Court has sided with former FC Barcelona coach Louis van Gaal in the lengthy litigation he maintained with the Treasury over the tax treatment of the €4.24 million compensation he received following his dismissal in January 2003.
The ruling, dated May 28 and still subject to appeal before the Supreme Court, corrects the stance held for years by the Tax Agency and recognises the Dutch coach's right to apply the 40% reduction that was then provided for in the income tax for irregular earnings. Additionally, it orders the Administration to pay costs, with a maximum of €5,000.
The origin of the conflict: a severance payment of €4.24 million
The origin of the conflict dates back to the agreement reached between Van Gaal and Barcelona after his dismissal midway through the 2002-2003 season. Both parties agreed on a severance payment of €4,239,392, consisting of compensation derived from the termination of the employment contract and the transfer of image rights.
In the agreement, Van Gaal accepted the club's proposal, which included paying him the salaries for the remainder of the season, from February to June 2003, totalling €2,239,392.98, plus a compensation of two million.
When he filed his income tax return for 2003, the coach applied the 40% reduction to the entire severance payment, as was permitted by legislation at the time for what were termed irregularly obtained earnings.
The National Court dismantles the Treasury's interpretation
However, the Treasury considered that only two million euros could benefit from this tax advantage, believing that the rest actually corresponded to ordinary salaries. This interpretation led Van Gaal to claim a refund of nearly €815,000 overpaid.
Neither the Regional Economic-Administrative Court of Catalonia nor the Central Economic-Administrative Court accepted his arguments. Only after resorting to contentious-administrative jurisdiction did he manage to have the National Court disapprove the stance held by the Tax Agency.
The Court rejects the thesis defended by the State Attorney's Office, which argued that the reduction could only apply to part of the amount received. The judges remind that the severance payment does not constitute ordinary remuneration derived from the provision of services, but rather compensation for the termination of the contractual relationship. Therefore, they conclude that it qualifies as
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