In addition to all the headlines about the World Cup, football (or soccer, depending on where you live) fans around the world have also likely noticed the scandal involving Cristiano Ronaldo and his tax situation. Ronaldo is known as one of the top athletes in the world, whether you look at performance, popularity, or earnings. His situation shows that even high-net-worth individuals are not immune to these problems.
Ronaldo’s Tax Evasion
Ronaldo’s tax evasion scandal has been going on throughout the year. Spain’s Agencia Estatal de Administración Tributaria (AEAT), the country’s tax agency, claims that between 2011 and 2014, Ronaldo understated his income on his taxes. The specific income in question goes through Tollin Associates, an offshore company, and is related to “image rights.” According to the Spanish tax authority, Ronaldo reported €31.5 million less than he had earned thanks to these omissions. That income difference translates to an added €14.7 million in taxes due. Unsurprisingly, the figure does not remain this low as the tax authority also charges such costs as fines and interest. This brings the total due to €28 million.
Although Ronaldo was unwilling to pay the full amount of €28 million, he did make several offers to pay a low tax on this offshore income that went unreported. In March, he offered to make an admission of wrongdoing and pay €3.8 million. Unsurprisingly, this offer was rejected, as it was only 13.6 percent of the amount the tax authority feels Ronaldo owes. This was followed by a much more recent offer of paying €14 million, which the Spanish authorities rejected in late May. Following the refusal of this offer, the tax authority demanded Ronaldo make a full payment by June 15, which was the day of the first Portugal game in the World Cup.
A Deal Just in Time
Cristiano Ronaldo ended up reaching a deal with the Spanish tax authorities just before that deadline, allowing him to put his full attention on the World Cup. Just a few days before June 15, a source reported that Ronaldo agreed to a suspended jail sentence and paying a fine of €18.8 million, the equivalent of $21.8 million. At the time, the deal still had not been signed, and no new reports have surfaced yet to say that this has changed. The deal includes a two-year jail sentence for Ronaldo, which he would unlikely serve. This would be due to a Spanish law that lets first offenders serve sentences under two years on probation.
Ronaldo’s Situation Demonstrates the Complexities of Taxes
The “image rights” reporting that led to Ronaldo’s fine and suspended sentence commonly affects other football players due to the confusing laws regarding these taxes. Image rights of players typically go through a company acting in that player’s best interest. This allows for a corporate tax rate instead of one applied to earnings. This also allows players to decide when they wish to withdraw money, including the option to wait until after their career when they have a comparatively low tax rate due to decreased earnings.
This is typically accepted by most countries, but it becomes more complicated in the case of offshore companies for image rights, causing some countries to act. In Ronaldo’s situation, the Spanish tax authority argued that he did not declare the amount received from those image rights in the relevant years.
Lionel Messi, another top-ranked football player in terms of performance, wealth, and popularity, got into a similar situation in 2017. The Argentinian plays for Barcelona and was able to pay a $2.5 million fine instead of serving a 21-month prison sentence.
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