Payments from FC Barcelona to Lionel Messi’s charitable foundation have come under a legal probe by Spanish authorities
One suspicion is that these should have been taxable income of the player
Following the investigation, the Club helped Messi clear up his tax affairs with a loan, even though the terms of the loan were questioned by Barcelona’s own compliance officer
The revelations are the latest in EIC Network’s reporting of Football Leaks, using confidential documents provided to German magazine Der Spiegel.
He is known as the Messiah of football. The quick-footed Argentine from lowly beginnings with a shy temperament has spearheaded Barcelona Football Club to 30 titles, scoring 365 goals in 400 games for Spain’s Primera División.
But Lionel Messi’s genius comes with a price.
In 2017, the Catalonian club was worried the superstar could leave Barca - and needed the perfect contract to ensure his loyalty.
So Barcelona guaranteed its record goal-scorer a world-breaking annual income of more than 100 million Euro.
This figure is the total expenditure of a large club in western Europe.
The background to the deal is revealed in confidential documents from Football Leaks supplied to Der Spiegel, and further research by partners in the European Investigative Collaborations (EIC) network.
These show how Barcelona is suspected of covering Messi’s tax problems on the club’s donations to the player’s charity in a loan to the goal-scorer.
Lionel Messi and his father Jorge have a history of tax evasion. In July 2016, they were convicted by a Catalonian Court of failing to pay 4.1 million Euro in taxes on image rights between 2007 and 2009.
The pair received a large fine and a 21-month prison sentence in Barcelona. Because the Messis were first-time offenders, the judge did not send them to jail. Messi said he did not know about the deal, and his father claimed he was acting on legal advice.
During an audit of FC Barcelona in 2016, agents from Spain’s IRS, the Agencia Tributaria, stumbled across money transfers worth millions of Euro from the club to Messi's father and to the player's nonprofit charity, the Fundación Leo Messi, which aims to help children in need.
The inspectors demanded all documents on Barcelona’s multi-million Euro payments from 2010 to 2013 to the Fundación Leo Messi. Officials demanded Barca detail exactly what the club had paid for. There was a suspicion that the transfers of the club to the Foundation were not donations - but salary payments to Messi.
Barcelona seemed unsettled by the investigation. According to an internal email, the club's chief legal representative notified the Messis “out of loyalty” of the questions to which the authorities requested answers. Jorge Messi responded confidently: “Don't worry, we have become quite knowledgeable on these issues.”
But the club hired a renowned lawyer to examine the situation, who made it clear that Barcelona's position in this dispute was not ideal – and Lionel Messi's status was even worse. The problem was that the Messis had disregarded legal requirements. For six years, they failed to finalise the registration of the foundation, which was opened in 2007, into Catalonia's registry of charities.
This means it was not a legal entity, even though it was receiving donations from Barcelona from 2010. From that period onwards, each renewal of the player with the club would come with a new payment commitment to its foundation.
However, because it was not a legal entity, the foundation should not have been able to take advantage of special tax benefits.
According to the Football Leaks documents, for years Barcelona was allowed to consider those payments as contributions to a foundation. In line with the tax advantages established for donations to such charities, these could have been applicable for a 35 per cent deduction in Corporate Tax.
The tax lawyer who compiled the risk analysis contacted FC Barcelona lawyers in late July 2016. He was concerned about the dire consequences for Messi: “Our view is that the risk of the player being subpoenaed has been extremely high for several weeks and is essentially unavoidable once the authorities next visit us.” The date of that next visit was just six days later.
A second tax scandal could mean further trouble for the superstar. This would be a disaster for Barcelona, as the team's tactics are tuned to exploit Messi's talents to the fullest.
After the club informed Messi, he regulated his tax situation regarding payments outside of his salary. This included millions of dollars in consultancy fees the club had paid to Messi's father and cash that FC Barcelona had transferred to the player's charitable foundation. In total, the football star needed to pay back taxes of around 12 million Euro.
But there are indications that the multimillion star agreed to this, because Barcelona - indirectly - would pick up the bill.
A draft contract states that the club wanted to grant Lionel Messi a loan of 12 million Euro. With this money, the professional could pay off his tax debt. “Even if the sum in question will be formally paid by Señor Messi, it will ultimately be absorbed by FC Barcelona,” the draft stated.
In December 2016, Messi and the club reached a deal on the loan. This called for 12 million Euro to be wired to the player's Caixabank account two days after the contract was signed. The draft notes that Messi would be obliged to pay back the loan in 24 equal payments, with the last due on 31 December 2022.
But did Messi already know that he would not have to pay back the loan? He and the club agreed on a bonus to his salary of 23.1 million Euro.
Not everyone at Barcelona was happy with this situation.
The club’s compliance officer, Sabine Paquer, voiced doubts about the loan period, the interest rate and additional clauses.
One club director asked the chief financial officer (CFO) to explain to Paquer that “the club is not an ordinary company” and that “this loan could help Leo extend his contract”.
The CFO also told the compliance officer by mail about the urgency of these contracts. “We have to remember that this is the club's most significant asset,” he wrote.
To ensure that their superstar would remain tied to FC Barcelona beyond 2018, Barcelona club President Josep Maria Bartomeu, his deputy Jordi Mestre Masdeu and club CEO Oscar Grau drafted three core contracts, all of them written in Catalan. The first was an employment contract, countersigned on behalf of Lionel Messi by his father; the second was with the company Leo Messi Management S.L., pertaining to the player's image rights, likewise signed by Messi's father; and the third a contract with Messi's foundation in Barcelona.
If Messi fulfils the terms of the contract as a regular Barca player, the Argentine will receive from his club a guaranteed 106 million Euro per season - twice as much as the previous amount. This will rise to 122 million Euro if FC Barcelona wins the triple - the Champions League, the Spanish Championship and the Spanish Cup - and if Messi is named the best player in the world that season.
This means spending on Messi accounts for almost 40 per cent of the staff costs for the entire team.
The issue here - disputed by Barcelona - is whether the club is helping players transform their tax debts into guaranteed salary earnings.
When FC Barcelona extended its contracts with Messi at the end of June 2017, the two sides agreed to annul the bonus payment of 23.1 million Euro for the 2017/2018 season. Now that sum had become part of Messi's newly-agreed fixed salary.
The club has for years enjoyed millions of Euro in tax concessions from the Spanish state, but was now willing to compensate the tax authorities for the fiscal shenanigans of its star player, a man already convicted for tax evasion.
Today Barcelona stands by its principles. A legal representative for the club says: “All the payments that the [club] has made to the Leo Messi Foundation or to other Foundations, have been made with the necessary animus donandi [intention of making a gift] in a donation.”
In a written response to questions on the issues above, Lionel Messi’s father and business partner Jorge stated: “Me and my son and the have duly fulfilled our tax obligations. The tax treatment of any payment made by the [FC Barcelona] or Lionel Messi has been taxed according to law and to the Spanish authorities’ criterion.”
He added that in May 2017 all criminal proceedings against him and his son ended after an analysis by the Spanish courts.
But sources close to the investigation have confirmed to newspaper El Mundo that an inspection into FC Barcelona's tax affairs is still open, including payments made to Messi both via his agent, and his foundations.
Reporting for Der Spiegel and EIC Network by Rafael Buschmann, Jürgen Dahlkamp, Gunther Latsch, Nicola Naber, Jörg Schmitt, and Michael Wulzinger, and for El Mundo by Javier Sanchez and Paula Guisado
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