ERROR
Main Error Mesage Here
More detailed message would go here to provide context for the user and how to proceed
ERROR
Main Error Mesage Here
More detailed message would go here to provide context for the user and how to proceed

City Journal

search
Close Nav

Ronaldo’s Taxing Exit

eye on the news

Ronaldo’s Taxing Exit

The world’s most famous athlete is leaving Spain for many reasons, including los impuestos. July 11, 2018
Politics and law

It would be an exaggeration to say that Portuguese soccer superstar Cristiano Ronaldo is leaving his team, Real Madrid, for Italian club Juventus strictly because of the Spanish taxman. Ronaldo had other reasons for making one of the biggest moves by a star athlete in recent memory, including the fact that he was paid less than rival Lionel Messi at Barcelona—even though Ronaldo led Real Madrid to three consecutive European Champion’s League titles. Still, Ronaldo didn’t start talking about exiting Spain until local tax authorities began hounding him in spring 2017, and he has continually complained about his treatment by authorities since then.

The enormously rich striker was infuriated not only by the tax demands but also by the government’s accusations that he was hiding his income. “I am an open book,” Ronaldo told a Spanish judge. “You don’t need to do anything but type my name into Google and everything about Cristiano comes up.” Now he’s going to Italy, which has recently passed tax reforms designed to welcome foreign wealth. 

You don’t have to be a fan of Ronaldo, known to many as CR7, to be sympathetic to his complaints. Much of the case against him hinged on the interpretation of complex tax law, which, Ronaldo’s advisers argued, was ambiguous and inconsistently applied by authorities. At the heart of the issue was Ronaldo’s endorsement income, most of which comes from sources outside Spain. Like many athletes who live in Spain, he didn’t consider most of his worldwide income subject to full Spanish taxation. For a time, this was the case. But about five years ago, Spanish authorities began pursuing athletes, claiming that they were evading taxes on so-called image rights. Messi was ordered to pay a $2.2 million fine and given a 21-month suspended sentence because of some $4 million in endorsement fees that he channeled through companies outside of Spain.

Ronaldo’s financial advisers argued that 90 percent of his endorsement income came from worldwide companies such as Nike and Coca-Cola, but when they saw how the government was now treating endorsement income earned overseas, they offered to pay between $4 million and $6 million in back taxes. Spanish authorities instead demanded that Ronaldo cough up $18 million, plus plead guilty to tax fraud. If that wasn’t enough to incense Ronaldo— “I always paid my taxes, always!” he exclaimed in court—someone leaked news of the judgment against him to the Spanish press the day before Ronaldo and his teammates on the Portuguese national soccer team were scheduled to play against Spain in the World Cup. If someone in Spain had hoped that that might fluster Ronaldo, they miscalculated. He got a small measure of revenge by recording a three-goal hat trick against Spain. Less than a month later, Ronaldo completed a deal with Juventus to leave Real Madrid, and Spain.

Ronaldo has his reasons for going to Italy, but taxes may be an underappreciated part of the deal. Italy wants him because he could play a significant role in reviving the Italian soccer league’s fortunes, especially in an era when the value of worldwide television rights is exploding. And Juventus, whose publicly traded stock soared on rumors of a deal with the world’s most popular athlete, will pay him 120 million euros over four years. Plus, he might see a huge tax benefit from the move, thanks to recent Italian reforms that will attract wealthy foreign residents by taxing them at low, flat rates. Ronaldo’s transfer to Juventus would likely become the greatest advertisement yet for that legislation.

Considerable research illustrates the impact that taxes have on the movement of athletes and other wealthy individuals. Not surprisingly, lower rates are attractive to the superrich. But Ronaldo’s case illustrates something else about the power of taxation. He felt pursued and unfairly branded as a cheat within a complex tax system; in a global economy, he doesn’t have to stand for that treatment. Taking his star power with him to Italy might cost Spain far more, in the long run, than what Spanish authorities demanded of him in taxes.

Photo by Richard Heathcote/Getty Images

Up Next
eye on the news

Murphy’s Law

New Jersey’s governor hikes taxes in a state where residents are already fleeing and businesses are reluctant to expand. Steven Malanga July 5, 2018 Economy, finance, and budgets

Contact

Send a question or comment using the form below. This message may be routed through support staff.

Saved!
Close