Football players have historically moved from country to country for a variety of reasons,
more money, the chance to experience a new culture, to play for a famous club or manager,
to improve or learn a language and so on. One additional reason for this may have come
to light in Cristiano Ronaldo’s transfer from Real Madrid to Juventus in 2018, and
that is in relation to paying less tax. Ronaldo has just appeared in court and agreed
an €18.8 million fine and a 23-month jail sentence for tax related issues in Spain,
although fans of ‎La Vecchia Signora will be relieved to know that in Spain sentences
of less than two years for first time offenders are traditionally suspended. He will therefore
be playing for Juve regardless of this tax issue.
He is not the first player to be caught under such rules in Spain, as Lionel Messi, Neymar,
Marcelo and Xabi Alonso have also appeared in court in relation to their tax affairs.
It’s not just football players who have been under scrutiny from the authorities,
as Shakira has also fallen foul of the Spanish tax system recently.
Spanish tax law, which, like most tax legislation, is fiendishly complex, changes regularly and,
unlike Juventus’s home kit, is rarely black and white in terms of being interpreted by
the tax authorities. So, rules that were in existence many years ago have been refined,
adapted and reinterpreted resulting in this fine being agreed.
Many years ago, Spain was seen as the ideal place for an elite footballer to ply his trade.
This was because in 2005 the Spanish government passed what was known as ‘The Beckham Rule’
where someone who had relocated from another country only paid Spanish tax at 24% on their
earnings on the first €600,000. This was far lower than the rate in other countries
and helped attract the likes of David Beckham, Zinedine Zidane & Luis Figo to the country.
The rules were however tightened in 2010 and excluded anyone earning more than €600,000
a year In addition, all money earned outside of Spain
was deemed to be tax free, which for players who are effectively global brands was an even
bigger tax saving. Players, more realistically their advisors,
therefore had a huge incentive to classify their income as anything other than earnings
from their employer. For a footballer the most common form of alternative
income is in relation to their image rights. If you look at the front cover of FIFA 19,
the world’s most popular football console game, it features a likeness of Cristiano
Ronaldo on the front cover, and sponsors have to pay for the privilege of using the face
and name of a star. These rights are often linked to the player directly rather than
the club he plays for and therefore can be classified
Players management teams and representatives therefore started to create offshore companies
that dealt with the image rights and kept the money away from the Spanish tax authorities.
In the tax code of most countries there is a difference between tax avoidance, which
is arranging your affairs using existing legislation to minimise your tax bill, and tax evasion,
which is defrauding the tax authorities of their rightful share of income. Where avoidance
ends and evasion begins is an issue that occupies many hours of time for accountants, lawyers
and government authorities and usually involves very complicated arrangements.
In the case of Cristiano Ronaldo his image rights were dealt with by a shell company
in the British Virgin Islands tax haven. This company then sold the rights to another called
Multisports & Image Management Limited in the Republic of Ireland, where companies pay
tax at 12.5% compared to 43.5% in Spain. The Spanish tax authorities argued that such
an arrangement was solely to evade paying tax in Spain, which resulted in the fine accepted
by Ronaldo. The advantage of moving to Italy is that under
local legislation wealthy individuals can agreed to pay a fixed sum of €100,000 as
their tax income earned from outside Italy. For someone such as Ronaldo, who Forbes magazine
estimates earned $108 million in 2018, of which $47 million comes from image rights.
So, whilst Ronaldo took a pay cut in moving to Juventus from Real Madrid, his net income
is likely to be far higher.