Under French law, professional sportspeople are bound to their clubs by an employment contract under which they receive a salary in return for their services. The salary is subject to payment of the applicable French social security contributions. As part of the remuneration of players for their services, any sums paid to them by the club for the exploitation of their individual image rights are considered to be salary and social security is therefore payable in the same way.

In order to avoid the payment of social security on remuneration for a player's image rights, certain sportspeople and their clubs have tried to use 'dummy' companies to manage their image rights. The objective of such schemes is for payments in respect of image rights to be made not directly to the player, but rather to a dummy company (generally a company set up by the player), so that such sums are no longer considered to be salary and are therefore exempt from the payment of social security.

However, in accordance with French administrative doctrine, arrangements to pay such sums through intermediate dummy companies are not allowed under case law. A recent decision of the Toulouse Court of Appeal reaffirmed this position by penalising the use of such schemes.

In this case, in addition to the player's employment contract with the club, the contractual arrangements initially set up included a supplementary clause entitled "Special conditions", signed by the club and the company of the player's agent, which notably provided for the remuneration of the player's image rights, as well as a signing-on fee and a bonus if the club was promoted to the first division. In addition, a second contract providing for the payment of a licence fee for the exploitation of the player's image rights had been entered into between a commercial company represented by the club's chairman and another company responsible for exploiting and managing the player's image.

The court noted that the sums due to the player were directly associated with the performance of the employment contract and stated very clearly:

"that the image and reputation of the player could only be acquired and retained within the context of the contract of employment... remuneration of the [player's] image rights constitutes an integral part of his remuneration and the financial arrangements in operation between the companies... with the objective of certain elements of this remuneration being paid outside the terms of the contract does not release the employer from its obligation to pay it in its entirety."

On analysing this scheme, set up to ensure that part of the player's remuneration was paid by another company, the court considered that "its sole objective is to fraudulently reduce the amount of the corresponding social charges", thereby establishing the intentional nature of the arrangements.

Such schemes are also penalised during inspections performed by the URSSAF, the body responsible for collecting social security charges, which reincorporates any remuneration for image rights paid to dummy companies into the taxable base in the case of other similar configurations.

Therefore, special contractual schemes set up to pay sportspeople for their image rights must take into consideration the status of their employees.

For further information on this topic please contact Dorothée Simic at Nomos by telephone (+33 01 43 18 55 00), fax (+33 01 43 18 55 55) or email ([email protected]).