Widely regarded as the world’s greatest footballer, Lionel Messi has recently pulled off perhaps his most miraculous feat thus far: In the face of 3 tax evasion charges carrying penalties of up to 5 years in prison and a €24 million fine (over $31 million USD), the FC Barcelona superstar reached a €5 million settlement with Spanish tax authorities just hours after netting his 23rd career hat trick in a 3-2 victory over La Liga rivals Valencia.
While there is no denying the Argentine’s world-class prowess on the pitch, his alleged penchant for tax evasion certainly hampers his reputation whilst off it. The charges against him contest that in 2005, Messi’s father, Jorge Horacio, who is also charged in the case, initiated a scheme using a series of shell companies in tax havens to shield royalties and other licensing income from Spanish income tax. The tax havens, apparently located in Belize and Uruguay, were the ultimate destination for the funds that were allegedly funneled through an elaborate maze including the U.K. and Switzerland. The scheme reportedly enabled the two of them to avoid paying nearly €4.165 million ($5.5 million USD) in taxes.
Messi’s current contract with Barcelona only guarantees him a measly $16 million per year through 2018, but supplemented by lucrative endorsement deals with the likes of Adidas, PepsiCo, and Proctor & Gamble, that figure increases to over $41 million in annual income – making him the 10th highest paid athlete in the world. Though it seems to be an exorbitant figure, his accomplishments suggest that he’s earned every last penny of it.
The 2012 calendar year saw the diminutive center forward score 91 goals on the way to earning his 4th consecutive FIFA World Player of the Year award – smashing the previous world record of 85 goals set back in 1972 by German Gerd Muller. Messi’s prolific output for both club and country over the past few years have placed him in a class of his own in the world of football, though unfortunately for him this class is still not exempt from paying their taxes.
While almost any Catalonian football fan could tell you about Messi’s contract with Barcelona, the details of his various endorsement deals are somewhat more shrouded in obscurity. Endorsement income has become a hot topic of late because, like royalties and similar income, it is not generally tied to residency or performance at a certain venue. Unlike income related to playing football, you don’t have to be physically present to earn royalties or licensing fees. That makes the income somewhat intangible for tax purposes – and therefore easy to hide. The taxation of unearned income (which would include endorsement income as well as investment income) has become a huge issue for many countries, including Spain and the U.S., as the wealthy look for more ways to shield it from tax, often illegally.
Since the ordeal began back in early June, both Messi and his father have fervently denied any involvement in the alleged scheme. Messi claims to have “never committed any infringement” and to have “always fulfilled all his tax obligations, following the advice of his tax consultants.” The pair is still due to appear at a hearing on September 17th, though with the news of the recent settlement, it appears to be nothing more than a formality at this point. FC Barcelona can now breathe easier knowing their superstar will be on the pitch instead of behind bars, and refocused on continuing with what is shaping up to be another great season for the club at the top of the league table.
- Messi repays taxman $7.25 million (bigpondnews.com)
- Lionel Messi given new court date in tax case (metronews.ca)
- Barcelona’s Lionel Messi Pays $6.6 Million in Back Taxes to Spain (hispanicallyspeakingnews.com)
JDKatz, P.C. is a full-service law firm focused on tax law, business and transactional law, estate planning and elder law. We are dedicated to minimizing your existing liability and risks while providing valuable tax planning to streamline your tax issues in the future. Please call us at 301-913-2948 to schedule an appointment to meet with one of our trusted attorneys, or visit http://www.taxattorneymd.com.