Spain: Real Madrid FC Coach on Tax Fraud Charges
By Virginia Cirera, Lawyer, Statim Legal SLP, Barcelona, Spain
The Madrid Prosecutor's Office has requested a prison sentence of four years and nine months for the Real Madrid FC coach, Carlo Ancelotti, who is accused of allegedly evading €1,062,079 in taxes during the fiscal years 2014 and 2015, during his first stint as the Club's coach.
According to the indictment obtained by Europa Press, the Prosecutor’s Office has accused him of two tax offences, one for each period, and demanded two fines totalling €3,186,237. The trial was scheduled to begin on 2 April 205 at the Madrid Provincial Court.
The Public Prosecutor alleges that, despite Ancelotti confirming his tax residency in Spain and declaring his address in Madrid, in his tax returns of 2014 and 2015, he only reported the income he received from his employment agreement with Real Madrid, omitting earnings from the exploitation of his image rights, which he had allegedly transferred to other entities.
According to the indictment, on 4 July 2013, he signed a contract as Real Madrid head coach for the period from July 2013 to June 2016, in which his remuneration was specified, including not only his salary as coach, but also the income from the transfer of his image rights to the club.
However, he ended his relationship with the club prematurely on 25 May 2015, and, according to the accusations, he received €14,867,622.25 from Real Madrid in 2015 for his work as coach alone.
Image rights
The Public Prosecutor alleges that he resorted to a complex network of companies to avoid paying taxes on the remuneration from his image rights that he received from the Club and other brands for participating in various events. According to the indictment, he used a system of trusts and intermediary companies to hide the income from his image rights by transferring those rights to entities with no real activity, domiciled outside Spain. The goal, it is alleged, was to conceal the actual beneficiary of the earnings and avoid taxation in Spain and abroad.
The Public Prosecutor emphasises that the transfer of image rights began with a private contract dated 1 July 2013, in which Ancelotti allegedly transferred his rights to an entity called Vapia Limited for a period of 10 years and for an amount of €25,000,000.
Tax Returns of 2014 and 2015
He filed his personal income tax returns for 2014 and 2015, in which he declared only his income from personal work received from the Club as coach. In an attempt to evade his tax obligations, he omitted any income from the exploitation of his image rights. As a result of these alleged omissions, the returns showed negative amounts, entitling him to a refund of €39,575.17 in 2014 and €529,078.41 in 2015.
According to the Public Prosecutor, the income from the transfer of the image rights amounted to €1,249,590 in 2014 and to €2,959,768 in 2015, but neither Ancelotti nor the entities Vapia Limited and Vapia LLD have paid taxes on these amounts. Additionally, he failed to include the ownership of two properties abroad in his tax returns.
The Spanish Tax Agency has calculated the financial loss at €1,062,079, that is, €386,361 in 2014 and €675,718 in 2015, corresponding to undeclared income and unjustified refunds received.
Tax evasion
In Spain, a criminal offence is committed where the amount of taxes evaded exceeds €120,000 per year and per tax. The penalty is 1 to 5 years in prison and a fine equal to six times the amount defrauded. However, it is not enough to simply exceed the €120,000 threshold; there must be evidence of fraudulent intent, such as the use of shell companies or artificial schemes, for the tax authorities to raise the matter from an administrative violation to a criminal offence.
Similar cases
Shakira, the Colombian singer-songwriter, found herself in a similar situation in November 2023, when, after an arduous legal battle, she reached an agreement in extremis with the prosecution, by eventually paying €7.8 million, to avoid a prison sentence.
Conclusion
Ancelotti appears confident in press conferences, having expressed full trust in the Spanish justice system and stating that he will defend his position until the end. We will have to wait and see if he waits for the sentence or if family pressures lead him to reach a settlement with the Spanish Tax Agency.
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