London, Madrid, Dusseldorf

Mesut Özil in Spanish tax authority probe

The Spanish tax authorities have investigated German team player Mesut Özil for one and a half years - and ordered him to pay millions. A feature published in Der Spiegel, part of the European Investigative Collaborations (EIC) network

By EIC 2016
02 December 2016

July 23, 2014 seemed like a perfect day for Mesut Özil. Just a week and a half earlier, the German player had helped his country win a World Cup victory in Brazil and, finally, he could leave the circus that came with the championship behind him. It was time to put up his feet.

“I'm enjoying my vacation in Las Vegas,” Özil wrote to his millions of Twitter followers, posting a selfie in which he looked like he’d had a long night.

Özil's trip to the US produced several paparazzi photos that appeared in Bild am Sonntag, a German tabloid, and showed the star snuggling up with his partner Mandy Capristo.

In one of the intimate photos taken near the pool of a luxury hotel, they both had similar highlights in their hair.

“They are obviously streaks of luck,” wrote the paper. Özil didn't know at the time that on that summer day more than two years ago – a moment when he had reached the apex of his career – that his streak of luck was coming to an end.

He had come under the scrutiny of Spanish tax officials. The tax office was interested in his personal earnings from 2011 to 2013, when Özil had been playing for Real Madrid.

For more than a year and a half, his lawyers and tax advisors in Madrid and Mülheim an der Rühr in Germany tried to thwart the persistent investigation pursued by the Madrid authorities, the Agencia Tributaria, and rebut its claims. At the start of this year, the Spanish tax authorities ordered the German national team player to pay back-taxes and a penalty payment in the millions. Özil appealed the decision.

It could have been worse. His tax advisor, as internal emails make clear, was also relieved that their client had managed to narrowly avoid criminal proceedings.

“Özil had not submitted earnings records to Madrid”

The assessment produced by the tax authorities partly reads like they are reckoning with a tax evader who had tried to take them for a ride. According to the documents, Özil had not submitted earnings records to Madrid for his income tax return for either 2012 or 2013.

“The taxpayer was aware of his tax liability, or at least he should have known,” reads one document. “It is a fundamental requirement that every taxpayer is aware of, even those with only elementary financial knowledge.”

Another part of the document speaks of a “serious violation” and of a “cover-up.”

Mesut Özil's transfer from Werder Bremen to Real Madrid in the summer of 2010 catapulted him to become one of the top-earning football professionals in Europe. In the six-year contract Özil signed on Aug. 18, 2010, his new club guaranteed him gross earnings of 8,771,930 Euro (at current exchange rates, 9.6 million USD) per year.

The transfer was also extremely profitable for Özil's agent at the time, Reza Fazeli, as a result of a deal he had also signed with Real Madrid on 18 August 2010. Spiegel obtained documentation of this via the whistleblowing platform Football Leaks, along with records from Özil's tax file.

According to the deal, the Madrid club was to pay the agent a finder's fee of 1.5 million Euro by 5 September 2010. Furthermore, Real committed to paying Fazeli 600,000 Euro annually for the remaining five-years of Özil's contract. In total, Fazeli earned 4.5 million Euro for a couple of negotiating sessions and a few signatures. Özil came out even better.

“Özil promised guaranteed minimum net annual salary of eight million Euro at Arsenal”

In late Summer 2013, FC Arsenal said it would buy Özil from Real Madrid. On 2 September, the player signed several contracts with the Premier League club. “Addendum 2” of his five-year employment contract focuses on money: Mesut Özil is earning a base salary in London of 10.2 million Euro through June 30, 2018.

For each season that Arsenal qualifies for the group stage of the Champions League, he will receive an extra 1.8 million Euro. Furthermore, Arsenal agreed to pay its prominent newcomer a signing bonus of six million Euro, payable in five tranches of 1.2 million Euro per year.

But that wasn't all.

In a supplementary agreement, Arsenal promised Özil a “guaranteed minimum” net annual salary of 8,077,000. That’s roughly what Volkswagen CEO Martin Winterkorn, at the time the best-paid CEO of a company listed on Germany's blue-chip stock index (DAX), earned in 2013 after taxes. To reach this total, FC Arsenal signed another contract with a düsseldorf-based company that owns the football professional's publicity rights. The name of the company: Özil Marketing GmbH.

The deal foresees Arsenal paying an additional 1,476,095 Euro per year until June 2018 into an Özil Marketing account at Deutsche Bank in Düsseldorf. In return, the club was allowed to use its new star for marketing purposes for the duration of his contract.

Özil Marketing GmbH, headquartered on Königsallee in Düsseldorf, was founded on 18 September 2008. At that time, the young professional athlete, who was still playing for FC Schalke 04 at the time, and had not yet relocated to Bremen, transferred all of his global marketing rights to the new company. Anyone wanting to use Özil in a ad campaign would have to sign a contract with Özil Marketing. And several did. Sporting goods firm Nike, for example, paid 300,000 Euro a year to Özil’s company in 2011 and 2012.

But all of those deals are peanuts compared to what Nike’s competitor, Adidas, has been paying Özil Marketing for almost the last four years.

In 2013, Adidas International Marketing B.V., headquartered in Amsterdam, signed a contract with Özil's company that is supposed to run until the end of June 2020. This deal, which will make the young man from Gelsenkirchen into a global Adidas icon, could earn him around 16 million Euro. The additional 75,000 Euro that Adidas sent over as a bonus for the 2014 World Cup victory in Brazil was just a cherry on top.

“Özil didn't show up to summons”

It appears that until mid-2014, Spanish tax authorities had no awareness of these millions that Mesut Özil moved around, in his own name, between 2011 and 2013. Özil's tax returns had apparently failed to provide precise information, explanations or documentation. That led the Agencia Tributaria to issue a summons calling for the football star to appear at the agency's offices on 5 September, 2014 for a tax audit.

Özil didn't show up. Neither did his Spanish tax advisors. They only replied five days after the scheduled appointment, assuming that an email would suffice. That was their first mistake. Their next one was to use the familiar form of “you” in the email to the tax office official – a woman who, as became clear in correspondence over the ensuing months, was to become a serious thorn in Özil's side.

By the end of September, they wanted everything on the table: Özil's contract with Real Madrid and Arsenal; the corresponding addenda and supplementary agreements; all agreements pertaining to his advertising rights; income stemming from property ownership; a declaration regarding his global assets; comprehensive data pertaining to all his bank accounts and investment income.

Mesut Özil involved two tax accounting firms: One of them was based in Mülheim an der Ruhr. The other, called Senn Ferrero and based in Madrid, represents numerous clients from the world of entertainment and sports, including many Real Madrid players. The Spanish company was responsible for correspondence with Spanish officials while the German company was tasked with collecting the requested documents and information and having it translated into Spanish. It appears to have been a chaotic collaboration. On 30 September 2014, a Senn Ferrero accountant met with the relevant tax inspector for an initial hearing, but was unable to deliver the extensive documentation that had been requested several weeks previously. The Germans hadn't even sent over Özil's employment contract with Real Madrid.

“Please bear in mind that the failure to provide this documentation will derive in strong penalties for Mr. MO. ” the Senn Ferrero representative wrote to the tax accountants in Mülheim the next day.

If the patience of the Spanish tax authorities is pushed too far, he wrote, they could “adopt a much more aggressive attitude in the procedure, even to convert the procedure into a criminal matter under several requirements.”

In a mail to an executive at Senn Ferrero, the lawyer was even clearer.

“This isn't looking good. The inspector was astonished by our thin documentation. The office in Germany is extremely slow and I have the impression that they are completely clueless when it comes to tax issues.”

A bit more than a month later, it happened again. The Senn Ferrero representative met with the tax inspector for the third time and, again, the Germans apparently hadn't come through.

“It is worrisome with these people,” he wrote in an email to his boss. “They sent us a poor and incomplete translation of the contracts. We are going to present a wretched image when we meet with the tax agent on November 20.”

It took around a year before it became clear which payments and money transfers the Spanish tax authorities were most interested in. One main focus were the two payments of 600,000 Euro each that Özil's then-agent Reza Fazeli had received from Real Madrid in 2011 and 2012. The tax authority was of the opinion that Özil, and not the football club, should have been responsible for paying his agent the fee for the transfer from Werder Bremen to Real Madrid. The Spanish tax authorities were demanding that Özil retroactively pay income tax on this money as well. After all, Fazeli had performed his services on behalf of Özil and not for Real. In Özil's employment contract with Real, the agent had placed his signature next to Özil's and not next to the team's. Furthermore, Fazeli had for several years held power of attorney at Özil Marketing GmbH. The tax authority saw Real's payment of the agent as an income advantage for Özil, on which he was required to pay taxes.

The Spanish tax authorities used the same rationale when it came to fees of 1.47 million Euro paid to his subsequent agent, Erkut Sögüt, in September 2013 linked to Özil's transfer from Real Madrid to FC Arsenal. In that case, the money was paid to the agent by Arsenal.

“We have bad news,” Özil's tax advisors from Senn Ferrero wrote to their counterparts in Germany after the tax inspector demanded in March 2015 to see additional documentation pertaining to the player's transfer to London.

To protect Özil's 2013 income from the clutches of the Spanish tax authorities, Senn Ferrero worked together with a London tax accountant's office to search for a loophole. They argued that the football star, following his move to Britain in September 2013, was also liable for taxation there, because the tax year starts in Britain on April 6. A 26-page rental agreement was submitted in support of this interpretation. The contract made clear that Özil had rented a mansion in the north of London for two years at a cost of 9,000 GBP per week following his transfer to Arsenal.

Image rights company “under tax authorities’ focus”

But the Spanish authorities remained firm. Özil, they argued, didn't move from Madrid to London in April, May or June, but rather at the beginning of September 2013 and had thus spent more than half the year in Spain. He was therefore required to declare his 2013 earnings in Spain.

The tax inspectors, however, were especially interested in Özil Marketing GmbH, where Özil’s publicity earnings had landed. Companies that market the publicity rights of football stars are often covers for holding companies based in tax havens.

But there is no shell company behind Özil Marketing GmbH. The agency is headquartered in Düsseldorf and Mesut Özil is the sole owner. His brother Mutlu has been company director since October 2013, when he took over from Özil's father Mustafa.

It isn't surprising that the Madrid tax authorities wanted to get their hands on a share of the significant amounts of money Özil Marketing GmbH had made prior to his 2013 move. But Özil's Spanish tax advisors were able to successfully ward off the demand. To do so they presented a paper notarized in Düsseldorf documenting an out-of-court settlement totaling in the millions between Mesut Özil and his father.

Mustafa Özil, 49, had been the director of Özil Marketing since its founding in September 2008. Indeed, he had been at his son's side since the beginning of his professional career. Özil's father enjoyed the spotlight: His company car was a Ferrari and he liked to hold business meetings in Breidenbacher Hof, a luxury Düsseldorf hotel where a litre of mineral water costs 11.5 Euro. When things got complicated, Özil's father preferred to seek outside help, hiring expensive lawyers. As a result, the company's expenses grew out of control. In 2012, Özil Marketing spent 227,459.69 Euro on legal and consulting fees. In 2013, that sum grew to 251,497.96 Euro.

In October 2013, the father and son had a surprising – for the public, at least – falling out. Mesut demoted his father and, in October 2013, appointed his brother Mutlu to replace him. A few weeks later, Mustafa Özil then received a termination notice, effective immediately. Mesut Özil's father responded by filing a civil suit with a düsseldorf court.

He demanded “commission payments on the basis of a variable compensation agreement” – in other words, a significant share of the sponsorships that he had finalized on behalf of his son as the head of Özil Marketing. In response, Mesut demanded the return of a private 915,000-Euro loan and confiscated the registration of his company car, a Ferrari F458.

The conflict threatened to become a public mudslinging contest, with both sides countersuing. But before the planned 19 November 2014 hearing at the Düsseldorf regional court over the family’s row, Mesut and his father reached an out-of-court settlement at the beginning of October.

"Explosive" secret contract

The secret contract, certified by a Düsseldorf notary public, is seven pages long – and explosive. Newspapers reported at the time that Mustafa Özil had sued his son’s marketing company for unpaid commissions on deals with sporting goods companies companies and advertising contracts to the tune of 630,000 Euro. But 630,000 Euro is a laughable figure in this case.

The fact is that Özil Marketing GmbH committed itself to paying Mustafa Özil a severance package worth 8.1 million Euro, payable in two tranches within six months by March 31, 2015. Plus, he got back the key for the Ferrari.

It was an odd settlement. Why would Özil suddenly agree to provide his father with compensation that would consume around half of the revenues expected from his multimillion-euro deal with Adidas that would run until 2020? And why did the notary public explicitly distance himself from the 8.1-million-Euro deal, by stating he was neither familiar with the content of the suits and countersuits pending in court nor the amount that Mustafa Özil had originally demanded?

Neither Mesut Özil, his father nor his brother Mutlu, as head of Özil Marketing GmbH, provided comment on these questions.

“Özil’s compensation to father a deductible expense”

But this mysterious deal did in fact help the national team member with his tax audit in Madrid, which had already been active for more than two months at the time he reached the 8.1-million Euro deal with his father. That, at least, is how a senior Senn Ferrero employee describes it in an email.

According to the mail, the Spanish tax authorities ceased further investigation into Özil Marketing GmbH after receiving documentation of the millions of Euro in compensation paid to Özil’s father because, as the internal mail states, the tax authorities considered the settlement to be a “deductible expense.”

But Agencia Tributaria remained unforgiving on other points, particularly when it came to the 1.2 million Euro in fees paid by Real Madrid to Özil's then-agent Fazeli and the 1.47 million Euro fee paid by FC Arsenal to his new agent Erkut Sögüt. They determined these figures to be payment in kind for the German national team player. Özil's Spanish tax accountants wrote a rebuttal to the tax office in which they questioned the legality of the demand. But they also were aware that their client was going to avoid the worst.

“We successfully managed to prevent the tax investigation from becoming a criminal investigation,” a Senn Ferrero accountant wrote proudly to Özil's tax advisors in Germany. To demonstrate that such a threat had been imminent, he attached two articles from the Spanish daily El País about the tax problems facing Argentinian national player Javier Mascherano, who plays for FC Barcelona.

“Criminal proceedings will likely be introduced against Mascherano,” the Senn Ferrero accountant wrote to his German counterparts, but “for sums that are a lot lower than those of MO.”

Mesut Özil’s father Mustafa did not respond to requests for comment on the questions. Citing tax privacy laws, a media lawyer representing Mesut Özil and his firm Özil Marketing GmbH threatened to take legal action against Spiegel if it published the content of “alleged information” that had been “obtained through a hacker attack on the Spanish accounting firm Senn Ferrero in April 2016” and reported the facts incorrectly.

The lawyer also stated that there is no investigation and there are no criminal proceedings relating to Mesut Özil in Spain.

On 5 February 2016, Senn Ferrero received an official notification according to which Mesut Özil had to pay 2,017,152.18 Euro in back taxes, including late payment interest. On 7 March, the tax agents sent another notification to the Spanish tax accountants, this time regarding the penalty being levied: 796,963.36 Euro. Özil first paid his tax debt of over two million Euro. Initially, the penalty was lifted after Özil submitted an appeal on 8 March.

Neither his tax lawyers in Madrid nor in Mülheim would comment on the further proceedings. Özil’s media lawyer stated that there is only a civil proceeding that the player is pursuing on his own.

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