Lionel Messi, Tax Fraud and the Panama Papers

I have been fascinated by the accusations of tax fraud levied against soccer superstar Lionel Messi and his father by the Spanish tax authorities.  Right when I thought the story could not get more interesting of course Messi is tied to the Panama Papers.  As much as I like Hermione (h/t Shu-Yi), I love Messi!

As a quick background for non-sports and football (I mean soccer) fans, Messi is the greatest soccer player in the world and maybe the greatest soccer player of all time.  As a point of reference, he would be the equivalent of Michael Jordan, Joe Montana, Babe Ruth rolled into one player.  Imagine what would happen if LeBron James were accused right now of tax fraud by the IRS?  This would dominate ESPN and probably network television.  Well, this is what is happening in the rest of the world with Messi.

Last year, a bombshell was dropped when the Spanish taxing authorities accused Messi of defrauding Spain of more than $5 million.  More importantly, for Messi, (after all he made $74 million in 2015 so $5 million is a drop in the bucket) they sought 22 months in jail because of the fraud.  Last June, a Spanish court held that he should stand trial on the charges and the trial is slated for the end of May beginning of June.  (He really must have made the taxman mad.  As a total aside, but equally fascinating, Messi was investigated again at the end of last year by Spanish tax authorities over a charity match he put on).

What is Messi accused of doing?  According to documents, Messi’s father, set up companies in Uruguay and Belize to house Messi’s image rights.  I am guessing that, essentially, he would have a personal service contract with the entity in the tax advantaged country.  The sponsor would then hire the company for Messi’s image (e.g., his product promotion).  The result of this structure is to capture the payment in the company in the tax advantaged country.  Messi would then have income only to the extent that he was paid for his services by the company.

Messi and his father have taken the position with the current accusations that the structure was compliant and set up by advisors.  Nonetheless, in order to avoid a trial, they paid a corrective payment to the taxing authorities.  However, that remediation has not stopped the trial from coming.

Unfortunately, for Messi, things continue to get more complicated.  The Spanish newspaper, El Confidencial has reported that in the Panamanian Papers Messi has used a Panamanian company named Mega Star Enterprises to also house his image rights.  The Messi family denies that he was part of this structure.  According to an ESPN article, Messi’s father said that prior to this leak, the Spanish tax authorities knew about “all the assets derived from image rights, including those that were earned prior to and after that time [of audit].”

But the result of the accusation has ramped up the interest in the upcoming trial as well as whether the remediation payment was as accurate as the Messis claim.

I will keep updating everyone as the trial begins.

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