Football Leaks: We need to investigate tax crimes in elite sport

GUE/NGL presented some key reasons on why the EU PANA Inquiry Committee should consider focusing on the Football Leaks revelations. En español

By Pedro Chaves, Delegación Izquierda Plural (Spain)

Since 2015 the websites http://footballleaks.es/ http://www.theoffshoregame.net/ and https://eic.network/projects/football-leaks have been publishing data and filtering all kinds of documents that show the structure of permanent fiscal fraud in which high sport competition in general and the world of football in particular has entered. The case of football is particularly important because of its economic but also social and cultural implications.

The web already accumulates more than 20 million documents with all kinds of information regarding the fraudulent structures used by the soccer star system around the world to evade their fiscal obligations. But this criminal activity involves not only the players, but also executives, sponsoring companies, the advertising world, agents and mediators of the players, etc.

It would be very important to involve this world of deliberations on the Panama Papers, because it is a sector with broad social repercussion and can help to highlight, with greater force, if possible, the magnitude and importance of this network of tax avoidance and money laundering and its widespread use in certain areas of business.

On the other hand, the European Parliament has repeatedly shown its interest in ensuring good governance in the world of sport in general. Based on criteria such as transparency, accountability, equality or democracy. In fact, the next plenary session in February will discuss a report presented by Rep. Hannu Takula on this issue.

The structures revealed by the football leaks combine the use of tax exemptions in some EU jurisdictions (e.g. Spain), the use of low or null tax jurisdiction for the collection of revenue from the exploitation of image rights (e.g. Ireland), and the avoidance of withholding taxes through double tax treaties by, for example, multinational sports companies paying for the use of the image rights. Also, the exemption of exit taxes in the case of the sale of players in combination with tax exemptions in some EU jurisdictions (e.g. Spain).

Moreover, the revelations out of the football leaks relate to breaches to EU law, and to the enforcement of EU law regarding anti-money laundering. EU lawyers and other persons involved in the set up and/or management of offshore constructions for their clients were negligent in performing (enhanced) customer due diligence measures. In this respect, during the ECON/PANA Interparliamentary meeting held last Tuesday 31 January, Mark Pieth noted that football agents should be subject to anti-money laundering regulations in a similar way in which a real estate agent is.

The discussion of these topics could be included in one of the already planned hearings on intermediaries, such as the one to be held in March 6.

SOME SIGNIFICANT EXAMPLES

(The following list, not exhaustive, reveals the scope of what we are defending and its importance. The data are taken from the sports press and especially the Sports World). We propose below some examples of the meaning and consequences of this illegal structure in the upper echelons of international soccer.

CRISTIANO RONALDO. The player diverted at least 150 million euros of its advertising revenue to the tax haven of the British Virgin Islands. On the one hand, 74.8 million received between 2009 and 2014 and, on the other hand, 75 million achieved by the sale of his image rights between 2015 and 2020 to Peter Lim.

‘OFFSHORE‘. To avoid paying taxes, Ronaldo transferred his advertising rights to three companies in the Caribbean country. From before arriving at Real Madrid in 2009, Tollin; Since 2015, to Adifore and Arnel. The three share address in a two-story building with a pharmacy in the basement. The player declared the part of the income obtained in Spain in the campaign of the Income of 2014. It taxed for them 22.7 million and finally paid 5.6 million, around 4% of the total.

INSPECTION. On December 3, 2015, the Ministry of Finance opened a tax investigation of Ronaldo on its 2011-2013 Income Tax Returns. The agency confirmed after its publication that its file is “advanced”. Months after the start of the surveys, the player presented a statement of assets abroad in 2016 for 203 million euros. As it turned out, the aforementioned Caribbean companies did not appear in that document. “There are innocent people in jail and I feel that way,” Ronaldo said of the case.

JOSÉ MOURINHO. The publicity sales of the technic José Mourinho were also deviated to the British Virgin Islands to avoid taxation. According to the revealed structure, the profits ended in a New Zeland trust in the name of its wife and children.  The Finance Ministry in Spain opend an inspection on the coach, who had not declared any revenue for image rights in his years in the Real Madrid. The payment of taxes ultimately reached 2,1 millon Euros, less than half of what was initially estimated by his lawyers. Later, the Agency also claimed 1,4 millions for the payments made by the Real Madrid to his agent Jorge Mendes.

MILLION EUROS PER SURPRISE. In his defense against the Treasury, Mourinho’s advisers in Spain, from the firm Senn Ferrero, included a million euros in fictitious expenses of his company in British Virgin Islands, Koper. In this way they were able to reduce the profits and, consequently, the back taxes that the coach had to pay.

‘MENDES METHOD’. The common denominator of the tax avoidance schemes mentioned was agent Jorge Mendes. The image rights of its clients traveled in most cases of the low taxation of Ireland to the null taxation of some countries of the Caribbean to finish in bank accounts in Switzerland. The constructed tax structures were repeated in players like Fabio Coentrao, Pepe, James Rodríguez or Radamel Falcao.

MESUT ÖZIL. Other players who were not represented by the agent also had problems with Treasury. Mesut Özil did not make the declaration of the Rent in two of the four seasons that he was in Madrid, did not pay by the payments of the club to its representatives and received for this a fine. The German could also have been penalized for not declaring his advertising revenue, but the fiscal situation of the company that managed his image rights – poorly administered by his father – freed him of greater consequences.

LUKA MODRIC. The Real Madrid midfielder, who was also not a client of Jorge Mendes, used a simple tax structure to protect his income for image rights. Only four months after arriving at the club, he diverted the money generated from his advertising contracts to Luxembourg to enjoy his low taxation. There he used a company that had his wife, Vanja, as manager and was baptized with the name of his son, Ivano.

SECRECY CLAUSES. The millions of euros diverted to tax havens came through advertising contracts with clauses of all kinds. The multimillion-dollar madness that surrounds football got Neymar to charge $ 50,000 for signing 600 cards, that employees of Cristiano Ronaldo’s home should be silent for 70 years after the player’s death or that Paris Saint Germain paid Thiago Silva the 2.5 million euros in back taxes that this owed to the Italian Treasury.

ARGENTINE-DUTCH LINK. Up to five Argentine agents who represented or still represent players such as Ángel Di María, Gonzalo Higuaín or Javier Pastore used companies in the Netherlands to divert revenues from transfers, sponsorships and other businesses. Their profits eventually ended up in tax havens like the British Virgin Islands or Panama. While the Mendes method focused on two unique Irish companies and a single Caribbean direction, the Argentine strategy made use of numerous interchangeable companies.

COMMISSIONS OF AGENTS. The documents analyzed showed that the power of the agents is sometimes excessive. An example is Paul Pogba and the scandalous commissions that made him the most expensive player in history. Oualid Tanazefti, his discoverer, tried to sell his image rights without his consent. Mino Raiola, his agent, drew in commissions three times what the Frenchman won during his time at Juventus. In 2015, the fight between both representatives prevented Pogba to sign for big clubs like Real Madrid.

ON THE ECONOMIC AGENTS INVOLVED:

It should be noted that the revelations out of the football leaks refer to

INTERMEDIARIES (FOOTBALL AGENTS/ LAWYERS): Football agents and tax lawyers elaborate labyrinthine structures into which the money flows. During the ECON/PANA Interparliamentary meeting, Mark Pieth noted that football agents should be subject to anti-money laundering regulations in a similar way in which a real estate agent is.

OFFSHORE COMPANIES: players transfer their image rights to a company working on their behalf. Fees generated by those rights are then paid to that company, which only owes corporate taxes on those earnings, just like any normal company (avoiding to pay taxes as the high net worth individuals that football players are). A popular location for such offshore companies is Ireland.

COMPANIES PAYING FOR THE USE OF THE IMAGE RIGHTS: granola bar, deodorant brand, sports companies, football clubs, etc., pay football players’ offshore companies for such image rights, possibly avoiding withholding taxes through the use of double tax treaties.

WHO TO CALL FOR A POSSIBLE HEARING?

It would be essential to call the different agents who operate in this world of high competition and who are openly involved in this criminal network:

  • Some UEFA manager
  • Two directors of big clubs: Real Madrid, Barcelona, Manchester United, Manchester City, Paris Saint-Germain, Bayer Munich (to choose but necessarily among the biggest)
  • Two player agents or some law firm used in negotiations
  • Two top-level football players (Cristiano Ronaldo, Neymar, Messi, Toni Kroos)
  • Two Sponsoring Brand Managing Directors: Nike and Adidas would be perfect
  • Obviously, it is necessary to invite the rapporteur of the Report on the governance of sport in the European Parliament and some researcher specialized in this matter.

A hearing of these characteristics would give an important political projection to the research work of the Panama Papers Commission.