First: as noted in a previous post, Lionel Messi, Argentinian soccer star, and his father ("Messis") were on trial for tax fraud. Now, as reported in Sports Illustrated, the Messis have been sentenced to 21 months in prison for being found guilty of three counts of tax fraud. However, because Spain suspends sentences for first time offenders if the sentence is less than two years, the Messis will not serve time in jail. Instead Messi and his father will have to pay a fine in the amount of € 1.7 million and € 1.3 million, respectively.
The Court determined that the Messis evaded paying more than € 4 million in taxes on Lionel Messi's image rights between 2007-2009 by sending income through Uruguay, Switzerland and Belize to minimize taxes.
Second: as reported in this SI artcle, NBA superstar Kevin Durant chose the Golden State Warriors and decided to take less money than by staying with Oklahoma City Thunder, or any other suitor. Why did Durant take less money? Simple answer, state income taxes. Using the models in the SI article which makes certain assumptions, Durrant would pay $31 million in state income taxes (to California) compared with $0 state income taxes had he signed with the San Antonio Spurs (to Texas) or Miami Heat (to Florida), and compared with $14 million in state income taxes had he re-signed with the Oklahoma City Thunder (to Oklahoma). So why did Durrant choose to take less money? As stated in this SI article, he wanted a more free flowing (ball moving) offense and was frustrated with recurring issues with a now former teammate (Russell Westbrook).
Why are these cases important/interesting? In the first case (Messis), tax avoidance is not tax evasion, if done properly. In the second case (Durant), personal desire trumped tax consequences.
In the first case, it is interesting that the Messis undertook what in the tax world is known as transfer pricing with the intangible (Messi's image and likeness) and tried, unsuccessfully, to transfer the intangible between Uruguay, Switzerland, and Belize. This same concept has been utilized by very large US multinational corporations (i.e. Apple, Google, Microsoft, Caterpillar, Medtronic, and others) to transfer their intellectual property ("intangible") to low tax jurisdictions (Puerto Rico, Ireland, Netherlands, Switzerland, etc.) to lower their bills in the U.S.
The simple question is why did it work for Apple, etc. and not Messi? One answer may be that a person's image and likeness are not separable from an individual, whereas the intangibles related to non-living things (i.e. iphones, search data, source code, heavy equipment, medical devices, etc.) can be separated from the individual. Or another possibility is that the U.S. is not attacking transfer pricing with U.S. multinational corporations with as much zeal as Spain.
The Durant case is interesting because Kevin Durant chose to pay more state taxes but would be in the type of offense he craved instead of staying in OKC or moving to a tax favorable jurisdiction. So this raises the question of whether tax motivates people to make a decision or whether it is just an afterthought. For more information about state taxes and athletes see this Forbes article. See also this article through Fansided about state taxes and athletes.
If you have specific/credible information about individuals or corporations avoiding the payment of tax through transfer pricing or other methods, you can get involved in preventing/limiting the tax avoidance by filing an IRS tax whistleblower claim. The IRS pays an award between 15% to 30% of the tax collected to a whistleblower that provides specific and credible information about the taxpayer’s avoidance of tax. Contact our firm if you want to discuss filing a tax whistleblower claim.