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How a change in Argentine tax law may have influence Mr Messi (maybe)

By Tony Attwood

Messi, the Barcelona player, has been accused by the financial authorities in Spain of not paying proper tax on earnings related to his image rights.  He has not been found guilty, and thus is innocent at the moment, but it appears that there is a case to answer.

So, imagining for the moment that Messi had committed some sort of fraud, how would it work?   Here’s the answer – again I suspect yet another Untold Exclusive.  (Mind you we seem to do so many of them these days that it is getting a bit repetitive writing the phrase).

First off, you need something that is a bit amorphous to sell – something that might accrue in the future.  Image rights is a good one.  Another option might be royalties – by which I mean future earnings on books, articles, web sites etc.

So having identified your area of earning what you then do is sell it to a company in a tax haven such as the British Virgin Islands.  Ideally a country that has a dollar economy – which curiously is what the British Virgin Islands is.  The unit of currency is indeed the US dollar.

Now you need a company in the British Virgin Islands that will buy your future earnings from image rights, royalties, web site rights or whatever you have in mind.   Fortunately because of the secretive nature of the British Virgin Islands, you can set one up there easily without giving away too much information.

Let’s say you have a really good friend who fancies living out there, and whom you know you can trust – you get him or her to set up the company.  For the sake of argument we’ll call your pal, Oldboy Messi – not that anything is implied by this.

So now Oldboy Messi sets up Lionel’s Pictures Ltd.  There is no local tax, no stamp duty, total anonymity, no disclosure, only one director and one shareholder required, incorporation happens within two days, no AGMs, no publicly accessible records, no personal presence required, no double taxation treaties, no need to file accounts, and the whole set up process costs about $1000.  You don’t actually need Oldboy Messi in the British Virgin Islands to do this – you can just use a local nominee. 

So now you have your company and you (the “L. Messi” character) sells all your future image right earnings to the company for a fee.  Since there is no disclosure in the British Virgin Islands the fee can be something tiny.  Say $1000.    An author or web site owner can sell all his/her future earnings in the same way.

Now everyone who is paying in money for the right to use a picture of Messi, or whoever it is has to pay Lionel’s Pictures Ltd in the British Virgin Islands.   The money pours in.  And in.

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One day, perhaps when the individual has stopped being famous, stopped playing football or stopped writing wonderful novels, he/she trots over to the British Virgin Islands for a holiday.  By chance he/she happens to stroll past a shop selling huge bags.  He/she buys one and finds that next  door is the bank that holds the Lionel’s Pictures Ltd account – and hence all the money.  The beneficial owner of the company asks for $50,000 in cash, stuffs it in the big bag, and leaves, accompanied by some heavies.

The money is given to a friend who trots of somewhere (could be anywhere) and puts down a deposit on a very nice property.  A few more trips back and forth and the property is paid for by anyone, who kindly allows the man from Lionel’s Pictures Ltd to live there.

In short the person who sets up the scam ends up paying no tax at all.  Nothing in the scheme is illegal in most countries, except at the level that the scheme exists for no purpose other than to avoid legitimate tax on money earned in a specific country.  I believe (but I am not a tax expert) that such an activity is illegal for a UK citizen earning money in the UK.  It probably is also the same for anyone employed in this country, and for anyone employed in Spain.  In other words, the basic rule applies: it is a criminal offence to be involved in a scheme the sole purpose of which is to avoid tax on money that arises as a result of your employment in that country.

But many people use schemes of this type.  That’s how it goes with the rich.  While ordinary people pay their tax, the rich think it is an outrage because they don’t want or need the stuff that the state can provide because they are, well, rich.

There’s only one problem.  The Messi family (used here only by way of example, not to suggest any wrong doing) don’t want to live in the Virgin Islands.  No trouble because…

On May 29 2013 in an effort to bring more money into the country the Lower House of Parliament in Argentina (the country whose nationality Mr Messi has) passed a tax amnesty law that pardons tax dodgers as long as they invest their undeclared dollars in the construction industry or help finance energy production in the country.

Nah; must be a coincidence.

Postscript: Lionel Messi has a net worth of $115m and an annual income of $44.68

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24 comments to How a change in Argentine tax law may have influence Mr Messi (maybe)

  • Lobster

    Brilliant. I brought up this ridiculous act, that is basically a law that allows u to break the law, with my LLB buds just a few weeks ago, but I never even thought of connecting it to the Messi case (Surprise! I’m a law school dropout).
    Really good article and do you in anyway have any sort of legal background? If u don’t mind me asking, because Argentine Tax Law is far from being general knowledge

  • americangooner

    the sad thing about tax dodging is that only the rich are able to profit from this scam. they have all the resources and can afford lawyers that tell them how to dodge taxes.
    in US the rich people lobby the congress to write laws that helps them dodge taxes. lobbying institutions give donation, which Is actually a bribe made legal, if the particular member(s) of congress give promises to pass the bill proposed by the lobby and make the bill into a law.
    Apples case is a very good example of how to use tax laws of two different country to pay taxes to neither. what apple did is pay those lobby, who then tell the congress what sort of bill to pass that is favorable to corporations so that companies can later say they followed the law despite being accused of tax scam.

  • WalterBroeckx

    There is THE law for the poor and there is laws for the rich…

  • WalterBroeckx

    You still amaze me at times Tony. I must say I never thought of anything like that being linked to this or might be linked. Amazing that you discovered this.
    Of course this praising you might turn you a bit arrogant 😉 🙂 …according to some 🙂

  • indian gooner

    but havent they thrown d book at d cayman islands govt. they were in d news for a while last year and year before that…for their tax luxuries.

  • Andrei

    @americangooner Apple used loopholes to avoid paying taxes on their worldwide income. Few countries including the US still have archaic tax laws that force their citizens and corporations to pay taxes on worldwide income not just income earned in the country. Apple did pay corporate taxes (which is another anachronism on its own) on their US income.

  • A. Stewart

    Nice writeup Tony. Entertaining, informative and thought-provoking.

  • Pad Gooner

    Which is unfair, a country with high tax rate and a sluggish economy asking its resident to pay exorbitant tax(more than 50%) for his worldwide income(which should include all possible avenues of income from anywhere) or an individual looking for tax havens to avoid exorbitant tax. For me both are unfair but the former is the cause of the latter on most cases. Messi would have done something to evade tax or it might have been erroneously missing that income while computing tax. Negligence is not a valid tax excuse but even that could have been the case.

  • Adam

    I am now deep in thought, Thankyou Tony.

  • americangooner

    Yes apple used loopholes, which was created by their own lobbyists.

  • sperez

    Talking about Argies…Times is reporting that Madrid have offered Higuain and Coentrão plus cash for Bale.
    It’ll be a good business for spuds if it’s true.

  • KEC286

    You had me interested until you started ripping on the rich and assuming all rich people are cheats. This is an article about tax fraud not politics 😉

  • weedonald

    I wonder if certain individuals wearing black and blowing whistles in Football, along with some corrupt agents and certain high-profile Football managers could be using this technique to avoid paying taxes in the UK? Maybe even a Football Club or three might be inclined to try this out as well.
    It would be very profitable for corporations (whose gross incomes far outweigh private individuals) to do something like this using the BVI as a branch operation, holding or shadow company or some such thing….and I am sure HRM Revenue & Tarif services are aware of this as well.
    Don’t forget that the BVI is a sovereign nation I believe and cannot be easily influenced by other nations….it is far more profitable for them to continue as they are and to hell with foreign tax authorities rancour and umbrage!

  • gouresh

    when we had the banking crisis here in the UK, there were articles in the press, as to why the monies from Barclays, Natwest etc were being moved to Jersey. the story ran for 2-3 days and then all died a quite death. wonder why?
    brillant article. by-the-way, its nothing new when Walter says ‘its 1 law for the rich and 1 for the not so rich’. its always has been and always will be the case…unfortunately!

  • WalterBroeckx

    Padgooner,
    the discussion about some tax rates being too high is another discussion. 😉 Living in the country leading the Tax table or very very close to the top I would say: yes 😉 But I’m probably a bit biased on this. 🙂

  • Adam

    “Before our white brothers arrived to make us civilized men,we didn’t have any kind of prison. Because of this, we had no delinquents. We had no locks nor keys and therefore among us there were no thieves. When someone was so poor that he couldn’t afford a horse, a tent or a blanket, he would, in that case, receive it all as a gift. We were too uncivilized to give great importance to private property. We didn’t know any kind of money and consequently, the value of a human being was not determined by his wealth. We had no written laws laid down, no lawyers, no politicians, therefore we were not able to cheat and swindle one another. We were really in bad shape before the white men arrived and I don’t know how to explain how we were able to manage without these fundamental things that (so they tell us) are so necessary for a civilized society.”

  • Adam

    Quote from Lame Deer. I thought befitting.

  • Brickfields Gunners

    @ Adam – that quote reminded of this famous one .

    When the missionaries came to Africa they had the Bible and we had the land. They said ‘Let us pray.’ We closed our eyes. When we opened them we had the Bible and they had the land.
    Desmond Tutu

  • WalterBroeckx

    And so he became a bishop 😉 After all what could he do?

  • Brickfields Gunners

    Walter , maybe he had some inside knowledge !

    But God can only smile because only God can know what is coming next.

    We may be surprised at the people we find in heaven. God has a soft spot for sinners. His standards are quite low.
    Desmond Tutu

  • para

    The older i get the more i realise that this world is run by crooks, and it is obvious that they make the laws favourable to crooks. They have thieved their way to the top, whether it is a thieving country who raped and pillaged the world, or a thieving company who rape and pillaged their customers with substandard goods too expensive, and then they try to stop any one else outside the “club” getting away with it. If you tend to fit in the “club” and their agenda you will most probably get away with it, but do any thing to upset the “club” and you will NOT get a look in.
    World of crooks.

  • A. Stewart

    Since this has veered off somewhat into broad discussions about financially related loopholes, tax heavens, different jurisdictions etc., it brought me to the much discussed FFP. Legislating and enforcing complex financial regulation across various states with various laws/regulations, with big corporations involved with skilled legal counsel etc…is going to be very difficult to enforce uniformly and as intended without challenge…no?

  • Adam

    @ A,Stewart. can’t argue with that, it is going to be a challenge, but one I hope the EC win. Remember what UEFA stated “we are only at the beginning of this”.

    And for me you haven’t wandered off topic and neither has anyone else, the media rights issue is also connected with FFPR as a salable entity.

    What I have been thinking on is; Players owning their own image rights outside of the football/employment contract which must be the case with Messi, otherwise he is taking money out of Barca’s pocket.

    Real Madrid, I think own the image rights to their players, so we won’t find a similar issue, unless the club/s are complicit in these acts of avoidance and encourage the practice to keep the players happy in greed.

    Also when it comes to a club owning the players future transfer rights/registration, we have rules about this and the clubs in England, France and Poland must own this outright.

    So where has all this stemmed from? My guess would be the film or music industries and as football has grown so has the interest from people involved in the monetary side of the industries mentioned and their tricks adopted into our game.

    What do you think?

  • Pat

    Great quote from Lame Deer, Adam.