The court found that Dorna CEO Carmelo Ezpeleta and COO & CFO Enrique Aldama had simulated the sale of shares in order to avoid paying income tax and to receive undeclared dividends from the shares the two men hold.
The ruling of the Division of Administrative Litigation of the Supreme Court was that Dorna Sports S.L. sold shares to a separate company owned by the same partners (including Ezpeleta and Aldama) who were selling the shares.
The share purchase was financed using debt held in part by the partners who owned the company buying the shares. Dorna claimed that this was a form of leveraged recapitalization, but the Supreme court disagreed with that assessment.
In reality, the Supreme Court ruled, Dorna and its executives were pursuing a means of receiving hidden dividends.
In its decision, the Supreme Court modified the fines originally imposed by a lower court, and reduced the seriousness of the offenses committed by the Dorna executives. The Supreme Court reduced the fine on Ezpeleta to €3.9 million from €5.1 million, while increasing that of Aldama to €2.7 million from €1.2 million.
The Supreme Court also reduced the seriousness of the offense, as they found that although the share sales were deemed to be an attempt to conceal declarable income, they were not fraudulent in nature, reversing the decision of a lower court.
Further fines are to be assessed for their failure to correctly assess and declare their tax liabilities resulting from the share sale.
Dorna Sports S.L. was also found to have infringed the tax code, improperly declaring the amounts of corporation tax to be paid by the company over the years 2003-2006 as a result of the sale of shares.
Here again, the Supreme Court ordered the initial fine of €17.2 million to be recalculated, as they judged the infraction to be less serious than the lower court had ruled.
In total, the Supreme Court imposed twelve separate sentences on Dorna, Ezpeleta and Aldama, imposing fines in each case. However, the fact that the Court ruled that the sale of shares had not been a fraudulent transaction meant that they viewed the infractions much less severely than the lower courts had.
Dorna Sports, and its executives Carmelo Ezpeleta and Enrique Aldama, today issued a rebuttal of the sentences. While accepting the authority of the court, the statement said the sale of shares should be regarded as a leveraged recapitalization.
Leveraged recapitalizations are a common business practice around the world, where debt is used to purchase (or repurchase) shares, swapping equity for debt. In the statement, Dorna Sports asserted that this was a perfectly valid use of corporate law.
Dorna have promised to pursue further avenues to appeal against the sentences, pointing to dissenting opinions in the ruling. Three judges dissented, two of whom disagreed that the sale of shares had been a simulation, and one of whom believed that the offenses should be regarded as less serious, because there was no attempt at concealment.
The press release from Dorna is shown below:
Despite holding the Decisions of the Courts in the highest regard, Dorna would like to express its disagreement with the content of the Decision of the Supreme Court regarding the classing of the “leverage recapitalization” transactions performed in 2003 and 2004, from the tax law perspective, as simulations. Transactions of this kind are commonplace in the economies of neighboring countries and are perfectly valid from the corporate law perspective. The fact that they are not to be classed as simulations is acknowledged by several Supreme Court justices, who have made known expressly their disagreement with the content of the judgements by expressing dissenting opinions. Dorna is analyzing the possible ways in which these judgements might be contested.
Source: Tribunal Supremo