Offshore Tax Evasion and Celebrities: Soccer Stars Christiano Renaldo and Lionel Messi

On June 13, 2017 Bloomberg News reported that Christiano Renaldo, the world’s best paid athlete ($93m last 12 months), who lead Real Madrid to Championship and Spanish Titles (and was 4 time world soccer player of the year) was accused by Spanish prosecutors of $16.5m tax evasion.

According to prosecutors, for the 3-year period (2011-2013), Renaldo under reported worldwide income stating 11.5m Euro while earning 43m Euros. He apparently has assets outside of Spain of 203m Euros (as disclosed in 2014 tax declaration).

The income apparently came from income from payments for his celebrity “Image Rights” (as the world’s leading soccer player). He is accused of “knowingly” hiding this income offshore and not paying income taxes due on these payments received.

He joins other worldwide soccer stars (Lionel Messi, who had his appeal rejected 6/17 over the same issue in Spain for which he was convicted of tax evasion and given a 2 year jail sentence which he never served. Neymar, his teammate is also under investigation for tax evasion related to his transfer from Brazil team Santos).

For the first time, international celebrities are now facing criminal tax evasion prosecution for unreported offshore income received from payments for their Image Rights. Athletes, Movie Stars and Musicians all face the same danger. With the disclosure of hidden assets and income held thru anonymous offshore entities, in Switzerland and the BVI (Panama Papers) the days of tax cheating for world wide celebrities appears to be coming to their bitter end. Or as the Bob Dylan song goes, “Its all over now, Baby Blue”.

The Cristiano Ronaldo tax evasion case in Spain centers on the soccer star’s Celebrity Image Rights. The primary allegation against Ronaldo is that he assigned his Image Rights (Name and Likeness) to offshore shell companies; he hid the ownership from the Spanish Taxing Authorities and is being criminally prosecuted for failure to declare the related income and pay tax due.

The Spanish Prosecution alleges that Ronaldo failed to provide Spanish Tax Authorities with a “Complete Accounting of Earnings” from his Celebrity Image Rights. The Prosecution alleges:

1) Ronaldo used his offshore company (Tollin) to hide income from his Celebrity Image Rights from the Tax Authorities and filed tax returns that understated his income and tax due;

2) The Tax Authorities allege that Ronaldo defrauded the Spanish Government out of 14.7m Euros ($16.5m US) between 2011-2014. Apparently in 2014, Ronaldo received a large payment for his Celebrity Image Rights (for the period 2015-2020) days before a Spanish Tax Law (the David Beckham Law was repealed). The timing of the payment in light of the repeal of the law indicate the transaction was “tax motivated”.

3) Ronaldo’s Agency (Gestifute) issued a public statement stating “using off-shore structures is common among soccer players”.

Ronaldo’s case in which he is being prosecuted by Spain for tax evasion is the second major tax evasion case involving a major worldwide soccer star. Soccer star, Lionel Messi, was previously convicted of tax evasion in Spain for using shell companies (established in the UK, Switzerland, Uruguay and Belize) to avoid taxes on 4.16m Euros of Messi income derived from his Celebrity Image Rights.

In Messi’s case, Spanish prosecutors focused on Messi’s clandestine, secretive, opaque structure in which the names of the beneficial owners of his off-shore shell companies was hidden, not revealed to tax authorities or the income received declared for tax purposes. The Court found Messi guilty of setting up a “chain of shell companies” to conceal criminal tax evasion and sentenced him to 21 months in jail (and his father to 15 months in jail) but they never served the jail time (in Spain sentences under 2 years do not require incarceration).

At trial, Messi claimed that he “did not understand the structure”, that he signed documents without reading them and he was just an innocent taxpayer who made mistakes. His defense failed. The Court held that he was being “willfully blind” to avoid his tax obligations.

In the United States, US athletes, entertainers and celebrities with worldwide income, which is not reported face heightened scrutiny. As of 2010, the Foreign Account Tax Compliance Act (“FATCA”) requires US taxpayers to include in their tax returns “world wide reporting and disclosure”. FATCA requires foreign banks to disclose American’s accounts held outside of the US, which are over $50,000. As of 2017, over 100,000 foreign financial institutions in over 80 countries are co-operating with the IRS to reveal massive amounts of financial information regarding US taxpayer offshore accounts.

In the US, willful “blindness” to tax obligations is not a defense to criminal tax evasion charges. Willfulness is defined under US tax laws as an intentional, voluntary violation of a known legal duty. Willfulness is confirmed by the Taxpayer knowledge of the tax reporting requirements and the Taxpayer conscious choice to fail to report the income and comply with the tax law.

A conscious effort to avoid learning about their tax reporting duties for offshore income is considered willfulness.

If the world’s biggest soccer stars use anonymously owned offshore companies to hold their Celebrity Image Rights in order not to report the related income and pay taxes due, after being advised by top lawyers, bankers and accountants (as revealed in the Panama Papers which included Messi) what are the risks for US athletes, entertainers and celebrities who also fail to report their worldwide income?

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