Top soccer stars Lionel Messi and Cristiano Ronaldo have both been dealt a heavy blow by Spain’s tax system.
Messi was sentenced to 21 months in prison last month, and Ronaldo is being chased for 14.7 million euros in taxes by Spanish authorities
Messi has registered an offshore company in Panama. But It did not help that Messi’s name came up in the Panama Papers. Messi and his father used shell companies to divert income from image rights in order to avoid taxes.
Messi is allowed to pay a fine of about 2 million euros to avoid serving a stretch behind bars.
In fact, he can be seen as an indirect victim of the eurozone debt crisis that broke out between 2009 and 2010.
Spain, one of the five eurozone nations that were considered weaker economically, was required by the International Monetary Fund to tackle its huge government deficit. The Spanish government hiked the top rate of income tax from 45 percent to 52 percent for those who earn an annual income above 300,000 euros.
As a result, these football stars need to pay nearly 70 percent of their income to local tax authorities after paying all kinds of taxes.
Messi and his father then set up an offshore company and sold his image rights to this shell company. Anyone who wants to use Messi’s image for promotion purposes has to pay the shell company. The design is aimed at avoiding tax payment in Spain.
Spain had not explicitly banned the use of offshore companies to avoid tax until 2011. Messi should have voluntarily disclosed his shell companies arrangements to tax authorities, but he didn’t.
In fact, it’s widely believed that Spain’s tax agency has deliberately targeted the top football stars in a high-profile legal case, in order to intimidate others to pay their taxes.
Likewise, Ronaldo was been accused of avoiding tax on the sale of image rights by using offshore companies. The Spanish court said he defrauded the Spanish government out of 14.7 million euros.
Ronaldo was upset about the tax fraud case, and sensationally said he would leave Spain and is considering a transfer to Manchester United.
Spain’s sports industry, largely dominated by football, generated revenue of 26 billion euros for Spain last year, representing 2.4 percent of GDP. The tax authorities’ move could bring the side effect of discouraging football stars to go to Spain, or triggering those playing in Spanish teams to leave.
This article appeared in the Hong Kong Economic Journal on June 30
Translation by Julie Zhu
[Chinese version 中文版]
– Contact us at [email protected]