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Why Thiago’s release clause is so complicated

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“I don’t get it! All we have to do is pay the stinking release clause and the player is ours right?!”

That’s what you would think, however this is not the case in Spain. It’s not like Gotze’s transfer to Bayern where all the player had to do was activate the release clause and there’s no negotiations necessary.

Before I start on my summary of release clauses in Spain, I would like to say I have only learned about them recently so I will not dive into the finer details. I would have to know the Spanish language in order to do that.

So here’s what you need to know about release clauses in Spain.

First of all, in Spain, La Liga players are obligated to have release clauses inserted into their contracts under Spanish law.  As a result, clubs can arrange for a player’s release clause to be set quite high.  In Thiago’s case, at the end of July his release clause rises to 90m euros.  There is also another case to consider here.  How release clauses are activated depends on whether or not a Spanish club comes in for the player.

For instance, if Madrid meets Thiago’s buyout clause, if Thiago wishes to leave Barcelona for Madrid, Barcelona are forced to sign the release papers and Thiago now belongs to Madrid. Case closed. End of story. Unfortunately, this doesn’t work for foreign clubs. It’s much more complicated.

Foreign clubs actually have to negotiate with the selling club. This doesn’t mean a non-Spanish club can’t activate the clause or the player can’t activate the buyout clause. It’s just not straightforward and here’s why.

All the parties  that are involved make the deal quite complicated. Tax authorities and lawyers have to check and make sure the deal is compliant with FIFA and UEFA codes of conduct, Spanish and EU contract law and of course, Spanish tax laws.  Only then can the deal move forward.

Technically, if a non-Spanish club is going to obtain the release papers from the selling club, the money has to be provided by the player.  It’s a breach of contract so the player is literally buying out his contract allowing him to leave.  The interpretation of the phrase “provided by” is vague and we saw this when Bayern Munich brought Javi Martinez from Bilbao. Bayern were given approval by Martinez to pay the money to the Spanish FA who act as intermediaries for these type of situations. The money was then given to Bilbao as compensation for losing Martinez. If Martinez had to pay for the clause himself, then he would be subject to income tax which could double the price.

Just to clarify, when the club meets the buyout clause, they can be subject to VAT(tax added onto the buyout clause) if it’s decided it should be applied. Who decides whether or not it’s applied I think falls at the discretion of the tax authorities. However, I don’t know with 100% certainty. In Bayern Munich’s case, the ruling was that they didn’t have to pay VAT because no services or goods were being exchanged.  Some disagree with the decision and think that a VAT should been applied.  I guess in Manchester United’s case, we have to pay the VAT.  Another clarification is that since Bayern Munich paid the release clause with Martinez’s permission instead of on his behalf, they did not have to pay the income tax.

What you may find surprising is that Spanish clubs usually do not exploit the buyout clause of other Spanish clubs. It’s not simply about playing the odds, clubs choose not to because it hinders relations with the other club.  You wouldn’t want the very same club coming back sometime later and taking one of your players by simply meeting the release clause.  So instead, clubs usually choose to agree on a fee and carry on from there.

So here’s the million dollar question, what does this mean for Manchester United & Thiago? Here are a few scenarios:

A) Thiago buys out his contract, MUFC pays release fee on his behalf and is now subject to income tax. (Total fee: up to 40m

B) MUFC triggers the buyout clause and most likely subject to VAT. (Total fee: up to 25m euros due to parties involved)

C) MUFC & Barca negotiate a fee to agree on. (Total fee: could be between 18-24m euros depending on negotiations)

We can essentially rule out scenario A as the deal could rise as high as 40m euros due to income tax.  Scenario B is much more likely and if MUFC have gone along this route, we could be waiting for tax authorities and all relevant parties to sanction the deal.  Also, there will be extra fees for the lawyers and tax officials involved.  The agent will want his fair share too.
If MUFC go with scenario C, it would be the most amicable way of going about the transfer. The release clause fee would essentially be used as a starting price for the two clubs to negotiate.  Reports have said Barca are stalling the deal and it could be alluding to these type of negotiations.  However, we don’t know what’s going at the moment and since both clubs have said essentially nothing about the deal, it’s hard to tell.

Manchester United is known for being quiet when it comes to negotiating deals.  The deal could be very advanced and we are just waiting for everything to be finalized before announcing anything.  We know that Thiago’s clause rises at the end of July and that he reports back to training on the 15th.  So if any deal was going to happen, you’d imagine it would have to be soon.

Thanks for reading.

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21 Responses to “Why Thiago’s release clause is so complicated”

  1. john says:

    Great article. Hopefully he comes

  2. Eddie says:

    Thanks john I really appreciate it. I hope he comes too.

  3. OJM says:

    Good article that (sort of) explained why it isn’t quite as easy as some make out and explained some of the vague parts to me.

    Please don’t take the ‘sort of’ as a bad thing – I appreciate the fact you are honest about the fact you don’t know EVERYTHING about the scenario, rather than pretend you do like some journo’s would.

    Good read…

  4. Eddie says:

    Thank you. I tried to be as accurate as I can.

  5. lee bonney says:

    Fantastic read this has kinda put my mind to rest,as lack of action going on thought deal was dead,just need to be patient.

  6. David says:

    Can you give us any inkling of what kind of tax we would be looking at having to pay? I’m guessing it’s big tax because we would just pay it if it wasn’t…

  7. Adam says:

    Very impressive article. It certainly cleared up any confusion I had about why the deal was taking so long!

  8. mark says:

    Best article I’ve read in what has been a week or two of garbage from the so called press.

    Well done and thanks for the hard work on putting a solid perspective on a complex issue.

    As for thiago I was losing hope. At least this explains it! Backed up by Moyes’ comments it makes sense. Sadly, I can see barca pushing option c until we eventually go for option b. I just hope its not the first option as we will pull out and be left without :/

    Again, thanks for the info!

  9. Eddie says:

    Hi David, we would be paying the VAT or IVA tax. I think it’s an 18% tax on the release clause fee which brings the total fee up to about 18-20m euros

  10. Eddie says:

    Hi Mark, I wouldn’t worry about option A. I follow Miguel Delaney and his source at United says the club are very confident of his signature. A deal can always fall through but I think we’ve got this one. We just have to be patient.

  11. Gaz says:

    Hi Eddie,

    Interesting article,the only think I can’t work out is where the figure of £40m comes from for option A – as far as I’m aware the income tax is %40 is Spain,so given the release clause is supposedly 18m euros/ £15m would we not be looking at more like £25m max?

    Not having a pop by the way, I’ve seen this figure mentioned several places but can’t figure it out.

  12. Eddie says:

    Hi Gaz,

    Thank you for your question. The most accurate figure is probably in the 25m range as you said. But the way I calculated it, I included the VAT and the extra fees for lawyers, tax officers, 44% on taxes and agent fees. Let me check up with some reputable journalists and I’ll get back to you. Sound cool?

  13. Simon says:

    Thanks very much for this informative and interesting article. Fingers crossed it all gets sorted soon.

  14. Eddie says:

    You are very welcome. Happy to provide the info. There will be more hopefully in the future.

  15. Richard says:

    Great read!
    Good info. This sort of information should be more widespread.

  16. Eddie says:

    Thank you richard. If you have twitter or facebook, please share it with your friends.

  17. Gaz says:

    Hi Eddie,

    That makes sense, cheers. Hope there isn’t any truth in this Bayern chat!

  18. Eddie says:

    Hi Gaz I just published another on article on Bayern rumor. Read here: http://www.trulyreds.com/20130711/thiago-to-bayern-full-story-behind-the-rumor/

  19. ayodeji says:

    Nice and well researched article. Got me to understand the snail progress we are making over the transfer saga. thumbs up

  20. red astair says:

    Thanks for explaining it so well, I didn’t realise it was quite so complicated. It explains a lot. Can Barcelona draw out the negotiations past Aug 1st or is the date set at first contact?

  21. Eddie says:

    Barca technically could stretch it out unless we activate the release clause. I dont think Barca want to though. Mundo Deportivo reported about a month ago that Barca were entertaining offers for Thiago. They need money if they’re going to bring in defensive reinforcements. I think they just want some type of smokescreen for when Thiago leaves.

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