Lionel Messi Ordered to Appear in Court as Part of Investigation into Tax Fraud

On Thursday, a court in Gava, Spain ordered Lionel Messi to appear in court on September 17 to be questioned in connection with an investigation into tax fraud allegations.  In particular, a local prosecutor has alleged that Messi and his father defrauded the Hacienda, the Spanish tax office, of $5.3 million.  The alleged tax fraud stemmed from Messi’s income related to revenue earned from image rights required to be reported in Messi’s 2007-2009 income tax returns.  Messi’s father, Jorge, was ordered to appear along side his son to answer to the charges.

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Photo author: Christopher Johnson

According to Forbes, Lionel Messi is the 10th highest paid athlete in the world, pulling in an estimated $41.3 million in earnings annually between his salary and various endorsements with Adidas, Pepsi, and EA Sports, among others.  And while that is a lot of money, no one can blame Messi for utilizing financial planning strategies to maximize the amount of his gross income that finds its way into his pockets.  The question now is whether Messi and his father used illegal or fraudulent means to avoid paying taxes on the gross income by diverting or assigning that income to shell companies in countries like Belize or Uruguay.  If found guilty of tax fraud, Messi could be fined an amount up to 150% of the concealed income and up to 6 years in prison.

Messi has denied any wrongdoing, and the Associated Press quoted Messi’s lawyers as stating: “We declare that our client will pay the amount determined.  But we believe that our client has already paid what was legally obliged.”  But one commentator suggested that the lawyers’ statement was a “confusing contradiction” and asked “If he’s paid in full, why would there be any outstanding obligations? . . . [I]t’s incredibly confusing why Messi would maintain his innocence and yet offer to pay the alleged back-taxes.”

A short answer to the commentators’ question would be: it’s not that simple.  Players, and indeed many high net worth individuals, engage a variety of financial or tax consultants to assist them with management of their income and assets.  There is nothing inherently wrong with that.  Tax codes are generally quite complex, and such high net worth individuals are wise to seek counsel from qualified advisors to ensure they realize the maximum amount of their income and abide by the relevant laws.   For that reason, clients will rely on their advisors’ counsel in making decisions about tax treatment of their income or otherwise managing their finances.  And while most Americans cannot speak to the substance of the Spanish tax code, the tax analysis that was employed regarding Messi’s earnings was likely complicated and involved in-depth interpretations of the relevant tax laws.

So, how can Messi’s lawyers state that Messi had paid his tax obligations in full, and yet make it clear that he will pay any deficiency in his tax obligations?  In short, the lawyers likely recognize that the final disposition of the tax fraud case could come down to how the court interprets the tax laws to which Messi’s image rights revenue earnings were subject.  If Messi’s advisors and the court reach different conclusions regarding the interpretations of the applicable law, the court’s interpretation will prevail, absent appeal. If the dueling interpretations are arguable, however, Messi could make a straight-faced argument that he believed he had satisfied his obligations to pay taxes under the Spanish tax laws, while making it clear that he will immediately address any deficiencies that result from a different interpretation of the tax laws by the court.  If the prosecutor’s fraud allegations are based on a common concept of legal fraud—an intentional misrepresentation of material facts or omission of material facts regarding Messi’s earnings—Messi’s lawyers’ arguable interpretation of the Spanish tax laws as the laws relate to the tax treatment of Messi’s income may negate the alleged intentional nature of Messi’s actions.  That is, if Messi reasonably relied on legally arguable counsel of his tax advisors as to how his image rights revenue income should be treated, he may be able to defend the fraud claim by arguing the that he did not intentionally violate Spanish tax laws.

Much of this is conjecture, but at this stage of the process, so is any assumption of Messi’s guilt.  Messi and his attorneys will have an opportunity to respond to the charges on September 17, and at that time, we will have a better understanding of whether the financial and tax planning employed ran afoul of Spanish tax laws.

Reporting on the business side of the world's game.