rules of the game

Knockout from the taxman

01.07.2013 | Ihor Levenstein

What happens when sport stars dont pay taxes?

Recent scandal with accusations of the world´s greatest living footballer, Argentinas Lionel Messi, of tax fraud was good reason to recall a number of cases when famous athletes had troubles with the tax authorities.

The four million process

On June 12 Spanish tax authorities accused FC Barcelona and Argentinas forward Lionel Messi and his father, Jorge, of allegedly filing fraudulent tax returns for four years from 2006 to 2009. The amount of the fraud exceeds EUR 4 mn.

According to the tax crime prosecutors, in the period from 2006 to 2009 the footballer received substantial earnings from the sale of rights to use his image to third parties. These earnings were taxable under the income tax, but Messi concealed information about his financial earnings.

Messi was accused of developing together with his father a strategy of transfer of rights for his image to companies based in such tax havens as Belize and Uruguay. This helped hide received earnings from the Spanish authorities.

Under the Criminal Code of Spain, the sentence for the three separate tax crimes 26-year old Messi and his father are accused of committing is 2-6 years in jail with a fine six times the amount defrauded. The amount of four million euros corresponds to the maximum punishment. Noteworthy, since recently, after amendments were approved to the criminal code, the tax authorities in Spain can try cases of those accused of tax fraud without going through the courts.

It is unlikely, however, that the great Messi will be imprisoned. In a statement posted on his Facebook page, Messi assured that he never tried to evade paying taxes. He expressed his surprise about the accusations saying he only learned about them from the mass media. We have always fulfilled all our tax obligations following the advice of our tax consultants, who will take care of clarifying this situation, wrote Messi.

Leo and his team

Messi is not the first and by far not the greatest violator of tax laws in the world of football. He had a number of star predecessors. The most renowned tax fraudster in world football is Messis fellow countryman Diego Maradona. After he played for Napoli, the Italian tax people accused him of unpaid taxes in the amount of over US $25 mn for the two last seasons in Italy (1989-1991). Later, taking into account penalties and fines, the amount grew to US $38.5 mn. The prosecutors believe that for two years Maradona simply did not pay any taxes. This, however, happened because former Napoli president Corrado Ferlaino told him and several other leading players that the team management would be paying taxes without notifying the players. In truth, however, the team did not transfer anything to the national budget.

Be that as it may, the Italian justice system failed to beat Maradona in this war. During Maradonas fling in Italy police confiscated his royalties for appearances on TV, his watch and even a golden earring. In the end, the Argentinean stopped coming to Italy stating that his lawyers had proven that he did not evade taxes.

Brazilian forward Romario, a world champion in 1994, won many titles on the football field. In a dispute with the tax authorities, however, the famous player lost and was sentenced to three and a half years of community work for tax evasion. The player was accused of tax evasion to the tune of $500,000 when he played for Flamengo in 1996 and 1997. The court sentenced Romario to three years in prison, but his lawyers managed to ease the sentence. Besides community work, Romario was fined US $890,000.

Messis former teammate, now Anzhi Makhachkalas international striker from Cameroon was also accused by the Spanish public prosecutor of conspiring to evade EUR 3.5 mn in taxes owed for income from his image rights while playing for Barcelona between 2006 and 2009. The prosecutor claims that Etoo allegedly used different schemes of tax evasion: he understated the amount of taxes from the earnings from the contract with the team and sportswear maker Puma and registered companies in Spain and Hungary to launder taxable money.

Under the criminal code of Spain, such crimes are punishable up to five years in prison or a fine 200 times higher than the amount of unpaid taxes. Etoo, however, accused his former agent Jose Maria Mesaliez of all the scheming.

Top-seeded players miss

There have not been any major tax scandals involving athletes in Ukraine. This, however, is due not to the honesty of our athletes, but rather to the method of payment of salaries and bonuses. Probably the only public case of this nature was that of the countrys best tennis player Alyona Bondarenko. The State Tax Service of Ukraine confiscated her Toyota Land Cruiser Prado for failing to pay a tax on her prize money for a victory in a tennis tournament. In the official message, the tax authorities did not reveal the name Bondarenko. However, it read that several years ago a 28-year old athlete received prize money for a victory in an international tennis tournament. Those in the know understood that this was about Bondarenkos victory at a tournament in Luxembourg in 2006, where he beat Italian Francesca Schiavone in the final. According to official information, the Ukrainian received US $95,500 for her victory.

Bondarenko was to pay UAH 125,000 in taxes and was informed about this personally, tax authorities said, but athlete appealed to different courts claiming she did not need to pay the declared tax referring to the convention on avoiding double taxation between the governments of Ukraine and Luxembourg. However, when Bondarenko received her prize money and turned in the declaration, the aforementioned agreement was not ratified by Ukraine. As a result, Bondarenko was charged with a tax debt payment and based on an executive letter of the District Administrative Court of Kyiv all property of the debtor was sequestered and her bank accounts were frozen.

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