A court date has been set for Spanish football Lionel Messi. The four-time World Player of the Year must appear in a Barcelona court on September 17 to answer to charges of tax fraud.
The 26-year-old sports phenom, who hails originally from Argentina, made his debut on the world football stage in Barcelona in 2000 at the age of 13. He has resided in Barcelona since that time.
The complaint alleges 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, said to be located in Belize and Uruguay, were the ultimate destination for the funds which were allegedly funneled through an elaborate maze including the U.K. and Switzerland. The scheme reportedly allowed the pair to avoid paying nearly €4.165 million ($5.5 million U.S.) in tax.
Messi was a minor for much of 2005 and turned 18 on June 24, 2005. He allegedly signed documents related to licensing revenues after that time, in September of 2005, and subsequently ratified documents that were signed on his behalf in January of 2006. The specific years targeted by the prosecution are 2006, 2007, 2008, and 2009, though there are indications that the net might be widening to include later years. RTVE (Efe) has reported that it is likely the investigation could be extended to include 2010, 2011, and 2012.
Messi has endorsements and licensing agreements with a number of companies, including Adidas, Proctor and Gamble, and Pepsi Cola. He has appeared in a number of ads and commercials.
Messi’s fortunes have landed him at #10 on Forbes’ list of the world’s highest-paid athletes with an estimated $41.3 million in earnings. More than half of his earnings were attributable to endorsements.
The case bears a striking resemblance to that of Brazilian race car driver Helio Castroneves. Castroneves, together with his sister, was accused by US taxing authorities of using a series of foreign companies to hide endorsement income. Castroneves was eventually acquitted on six counts of tax evasion.
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, as the G8 recently addressed.
The allegations, which Messi insists he found out about through the media, were made public last week. The announcement seems very purposeful on behalf of the Spanish taxing authorities who may be trying to send a message to the world that the country is serious about cracking down on tax evasion. That seemed to be the case when the Minister of Industry, Energy and Tourism, Jose Manuel Soria, reminded the country on the radio that “the tax obligations are the same for everyone.” However, the Minister of Education, Culture and Sport, Jose Ignacio Wert, was quick to issue a reminder that there is a presumption of innocence until Messi’s court date.
For his part, Messi and his father have denied all wrongdoing. The pair has been charged under Article 305 of the Spanish Criminal Code. If convicted, they could each face prison time of up to six years and fined several million euros.
FC Barcelona has not been charged with any involvement in the scheme. The club’s president, Sandro Rosell, is standing behind Messi, proclaiming:
El club no tiene ninguna duda acerca de su inocencia. (The club has no doubt of his innocence.)
You can read the original complaint here – in Spanish (downloads as a pdf).
