Messi in a mess – the importance of having a good team off the pitch
It’s a familiar plot: a wealthy person relies upon others to set up complex corporate structures to avoid paying tax, it doesn’t work and then all hell breaks loose. Lionel Messi will now face a criminal trial on allegations of tax fraud, which demonstrates the need for sportspeople to have a close circle of trusted and competent advisers.
Lionel Messi and his father Jorge are accused of defrauding the Spanish state on three occasions between 2007 and 2009. The allegation is that they avoided paying Spanish tax by creating a series of shell companies through which they sold rights to use Messi’s image to, amongst others, Danone, Adidas, Pepsi-Cola and Procter and Gamble.
The Court will hear allegations that the companies involved were in Uruguay and Belize, but the funds were allegedly moved through a number of companies, including those in the UK and Switzerland, resulting in the pair avoiding paying €4.165 million in taxes.
The structure at the centre of the dispute was allegedly set up by Jorge Messi in 2005, when his son was only 17 years old. However Lionel Messi is said to have ratified documents once he turned 18 and he is now the sole administrator of one of the companies through which the funds were transferred.
The story so far
Lionel Messi and his father have been charged under Article 305 of the Spanish Criminal Code, which on conviction carries a fine of up to €24 million and up to five years in prison.
The allegations came to light in Summer 2013 following a complaint made earlier that year and Messi Junior made a statement on his Facebook account shortly before the pair were summonsed to appear in court:
‘…we have never committed any infringement. We have always fulfilled all our tax obligations, following the advice of our tax consultants who will take care of clarifying this situation’.
In August 2013 Lionel and his father made a €5 million voluntary ‘corrective payment’ equal to the alleged unpaid tax plus interest. This, coupled with the Messi family account that Lionel did not participate in any decisions relating to management, was sufficient to persuade the Spanish prosecutors in 2014 to apply to the court to remove Lionel from the charge sheet. However, the prosecutors’ argument that Lionel Messi was not ‘aware of the reach, dimension, purpose or impact’ of the scheme did not hold sway with the court and it refused to drop the charges against him.
Lionel and his father appeared in court again on Wednesday 10 June to appeal again for the case to be thrown out. Lionel’s defence argued that he had ‘never devoted a minute of his life to reading, studying or analysing’ the complex contracts. Unfortunately for the player, the court argued that lack of knowledge of the scheme should not mean impunity for a person benefiting from a structure which assists fraud, even if it has been organised and executed by others. It seems therefore that Lionel and his father will face trial for the charges.
Lionel Messi is considered to be one of football’s best ever players. He has been given the FIFA World Player of the Year title a record four times. He is one of the most influential players at Barcelona, helping the team to win the Champions’ League four times in his career there.
Football is his expertise, not corporate structures, tax or finance, but he is still expected to comply with the law in these areas. That is why it is absolutely essential to the success of a sportsperson’s career that they should be able to switch off the background noise and focus on the pitch, or the court, or the pool, or the track. The best way to do this is to have a team of world-class advisers around you who make the right decisions, but who communicate with you properly and effectively. Advisers need to be able to speak to you directly, otherwise there is a danger that information may get lost in translation as it makes its way to you through a series of right-hand personnel.
Even if ultimately acquitted following trial, Lionel will still have learned an expensive and valuable lesson about the importance of understanding the implications of documentation that he signs.
Howard Kennedy acts for a significant number of sportsmen and women and we understand the sports industry from both a legal and commercial perspective. We are here to help you with issues that affect your business and personal life.
Get in touch with Lois Langton for more information.