A recurring and current topic in the entertainment and sports industries is the valuation that must be carried out in transactions involving the assignment and exploitation of the image rights of artists and athletes by entities that manage and coordinate their professional careers. Since, in most cases, these entities are entirely owned by the artists and athletes themselves, we find ourselves facing a transfer pricing scenario that has generated numerous legal controversies.
The issue arises when determining whether the income from such transactions should be attributed to the results of these related entities or, on the contrary, should be attributed to the personal income tax (IRPF) of the individual, that is, the artist or athlete.
It is worth noting that, despite being a fundamental and inalienable right recognized in Article 18.1 of the Constitution, the Spanish National Court, in its ruling of April 13, 2022, recognizes that the right to one's own image “[…] can, however, be transferred by the holder of such a right, authorizing a third party to exploit their own image, even for a fee, without this meaning that they renounce such a right (SSTC 231/1988 and 117/1997).”
Therefore, we are dealing with a highly personal right linked to privacy, but with a clear economic dimension that allows its commercial transaction. Based on this premise, numerous image rights transfer transactions to related entities have been structured, some with significant media impact, in the entertainment and sports sectors. These transactions are, in themselves, entirely lawful, since, as recognized by the High Court of Justice of Catalonia (STSJ Cataluña 610/2019), the fact that there is a different tax rate between personal income and corporate income does not imply that companies are used for fraudulent tax purposes.
However, the valuation of these transactions becomes controversial when the services resulting from the exploitation of image rights—services contracted by third parties from the assignee or exploiting entity—are, in reality, highly personal services provided by the artist or athlete.
In such cases, courts consider that the income derived from the provision of these services must be taxed as the earnings of the individual partner and fully attributed to the personal income tax (IRPF) of the artist or athlete, based on an arm’s length assessment of the related-party transaction between the individual and the company (STSJ Comunidad de Madrid 738/2019).
Under this premise, courts argue that services provided by the company should be considered personal services rendered by the artist or athlete when the contracted service agreements foresee the direct involvement of the artist’s or athlete’s image in their execution (e.g., media appearances, brand advertising, promotional events, etc.), where the physical presence and performance of the individual are essential, without any added value contributed by the company (STSJ Comunidad de Madrid 69/2021, February 10, 2021, and STSJ Comunidad de Madrid 42/2022, January 26, 2022).
Thus, it is crucial that, in cases where the services provided by an entity exploiting the image rights of a well-known individual involve the provision of highly personal services by the artist or athlete, who is also a shareholder of said entity, the related-party transaction between the shareholder and the company is assessed at market value, attributing the resulting income to the individual’s personal income tax (IRPF).
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