Everything You Need To Know About Cristiano Ronaldo’s Tax “Scandal”

On December 3rd Spanish newspaper El Mundo published a detailed investigative report into Cristiano Ronaldo’s personal finances. The report, which relies heavily on documents from the website Football Leaks, and consists of work by an inter-newspaper coalition of investigative reporters, details a large-scale tax evasion scheme aimed at sheltering just under €150 million from Spanish tax authorities. Here’s what you need to know about the explosive allegations.

Is there any danger that Cristiano Ronaldo could be found guilty of tax fraud like Lionel Messi?

In short, yes. However, Leo Messi’s case differs from this one (at least as far as we know) in one crucial aspect. Spain’s tax fraud law requires, on top of a general non-payment of taxes, an affirmative act of “concealing reality” (link to Messi’s case, see page 11-12). That means that Cristiano Ronaldo would need to have made some materially false statement of fact with intent to mislead the government to be guilty of tax fraud. This was the case in the Messi case; I don’t think we can say for certain whether this has occurred here, but it is a high bar. What Messi did—not just avoid paying taxes but lie about it and try to cover it up—is why he received such a harsh sentence.

However, Spanish law does make evading taxes a crime—but it would be punished by a fine, not a prison sentence (which is what happened in the Messi case). Right now, assuming the El Mundo report is correct, this is the crime Cristiano would be charged with.

So…is El Mundo correct?

Well, it’s not clear, though my instinct is that it is likely that the report is generally correct. To be clear, that means that the information in the report is likely accurate; whether they are correct legally might be a different matter entirely.

Cristiano Ronaldo’s agency has released a prepared statement indicating that Cristiano is in complete compliance with his tax obligations to the Spanish government.

They’ve also threatened to sue the people making up these “false statements”. For what it’s worth, I think it’s really bad form to threaten to sue newspapers, but that might be my American legal training shining through.

Should we be angry about this?

Yes. We really should. Sorry.

Regardless of Cristiano’s legal culpability, this is not a good look. People should pay their taxes—that much money could have gone to fund schools, roads, bridges, pay people’s medical bills and unemployment. Real people needed that money for real things. Tax evasion is not a joke and shouldn’t be treated lightly.

You know, you haven’t explained how exactly he managed this…scheme.

Well, I figured you might not actually be that interested, which is why I lead with the important questions like “is this worse than Messi?” (you know that’s all you care about, don’t lie to me).

So here’s the thing about the tax scheme Cristiano used: it’s actually strangely similar to the (legal) tax plans commonly employed by multinational corporations with intangible assets (like Cristiano’s image rights).

OK, so let’s begin.

First, Cristiano sold his image rights (that is, the money that companies pay him to use his likeness, name, etc.) to a corporation in the British Virgin Islands, a famous tax haven. That entity, Tollin Associates, transferred his image rights to two Irish companies, Polaris Sport and Multisports & Image Management (MIM). These two Irish corporations entered into contracts with the different brands and corporations that wanted to use Cristiano’s likeness; they then sent the money from those contracts back to Tollin in the BVI. Tollin held the money for Ronaldo until 2014, which was the end of the so-called “Beckham Law” in Spain, which allowed certain foreigners living in Spain to elect to be treated as a Spanish non-resident on their worldwide income—this could allow these foreign non-tax residents to avoid tax on their worldwide income for a period of up to six tax years provided certain conditions are met.

At that point (2014), Ronaldo sold his interest in Tollin (note: some sources disagree about whether Ronaldo owned an interest in Tollin or just had a contract with them to hold his money—I don’t think it really matters) and moved his money to a bank account in Switzerland. He also, according to El Mundo, re-structured his contracts to further complicate his tax structure to hold his image rights from 2015-2020, and repatriated some €20+ million, and paid the minimal Beckham tax of €5.6 million.

Cristiano used this structure to pay the fewest possible taxes at every turn. Ireland has a very low corporate tax, so any income captured there would only be taxed through the corporations at a very low level. The BVI has no corporate tax, so the money would not have been taxed by that government either.

Now, El Mundo argues that this shows that Ronaldo paid only €5.6 million of a total of €150 million or so. I’m not so sure. In the United States, it’s important to repatriate the money—to bring it back from abroad. In this case, it’s not clear to me that Cristiano has actually repatriated his money yet. For all I know it could still be sitting in a bank in Switzerland.

OK, so I didn’t really understand that, but is it as bad as it sounds?

Yes and no. Yes, it’s bad that Ronaldo used a complicated offshore tax structure to pay the minimum possible amount in taxes. Like I said, it’s a bad look.

That being said, and perhaps I’m risking being a little preachy here, I think we should really be upset about the system that allows for and encourages this type of tax planning. Every country in the world lets hundreds of billions of dollars every year flow out of their own countries—billions of dollars that could be feeding and educating poor children, I think I should reiterate—and into tax havens. There has to be a better solution to this than either (a) legalizing it, which is basically what the US has done or (b) making some things illegal but not others and making the whole thing super confusing, which is where we are in Spain and much of the EU. In law school I wrote a paper for an international tax law class on why we should think about designing and signing a multi-lateral tax treaty that could allow some formal structures to end some of the abuses we’re seeing. But even that probably wouldn’t be enough here.

But yeah, this is bad. It’s not tax fraud (which I think is worse, hi Leo) but it’s still not paying taxes which is bad.