As the next round of BEPS publications start to appear, two stories from the world of football made me think about the whole process of how we think about tax avoidance. They concern Uli Hoeness and by association Bayern Munich and Neymar and Barcelona. Now these two teams are amongst the true elite of club football, so how they deal with tax says something about how we all regard it, and more precisely how we regard it when it is connected with something or someone who is admired.
First, Uli Hoeness. “Uli Hoeness has resigned as Bayern Munich president and chairman in the wake of his conviction for tax evasion” were the headlines last week after Hoeness was found guilty of evading taxes worth £22.5m (27m euros).”
“Uli Hoeness has always devoted his leadership qualities, great personal commitment and outstanding lifelong effort to the best interests of Bayern Munich,” Bayern said. “He is very largely responsible for Bayern becoming one of the most successful and attractive clubs in the world both in sporting and financial terms. We offer him heartfelt thanks and gratitude for this.” (My emphasis)
So this was a case of tax evasion pure and simple albeit a large one. A number of questions I suppose, how did it go on for so long? How much did the club know? Who advised Hoeness? Does this call into question the financial deals he helped mastermind for the club? What were the German tax authorities doing?
Second is the story of Neymar and Barcelona. This is more aligned to the issues of Beps and globalisation and reputation. Barcelona has an image as a club which plays beautiful football and eschewed advertising on their football shirts for some time to support UNICEF. They also have a key place in the heart of Catalan nationalism. To quote the clubs’s website “FC Barcelona is “more than a club” in Catalonia because it is the sports club that most represents the country and is also one of its greatest ambassadors”.
The Neymar saga challenges some of this pure image and calls into question the club’s ethics, and poses interesting questions for those who advise them and the Spanish tax authorities.
The fundamental problems concern the structuring of the transfer of Neymar from Santos in Brazil to Barcelona.
The Spanish prosecutor, José Perals, asserts that the club has allegedly defrauded the Spanish state out of taxes amounting to 9, 100, 800 euros related to the 40 million paid to Neymar’s family company N&N. His argument is that the “simulation of contracts” amounts to “financial engineering operations” with the purpose of “defrauding the Spanish Treasury.” He then mentions the sheer amount of different legal contracts (11) and the variety of payments made.
Interestingly the club has made a “complimentary tax declaration” of 11m euros.
So what happened? Well it appears that Santos got 16m euros and originally Barcelona “paid” 48.6m euros in June 2013 for Neymar. This number has gone up and the cost now appears to be in excess of 100m euros. This is all down to the structuring of the contract which involved amongst other things 40m euros to N&N the company owned by the player and his father, 2.6m euros to Neymar’s father for negotiating the contract on behalf of his son (?) , 2m euro to another Neymar owned company to look for new talent in Brazil, 4m euro to find a commercial partner in Brazil (? For Barcelona? They obviously couldn’t do this themselves!) ,7.9m euros for preferential rights on three Santos players and 9m euros for two friendlies. Finally, 2.5m euros for an organisation to help the poorest neighbourhoods in Sao Paolo.
In addition remember that Messi is under investigation for tax issues and the transfer of David Villa from Valencia to Barcelona is now under investigation.
So how does this relate to Beps? Well I suppose the first question is will this affect Barcelona’s reputation and brand? It all looks pretty stretched from the outside and some of the justifications for payments really don’t pass the laugh test. But then to most ordinary folk lots of international tax structuring looks odd too. Barcelona’s tax advisers must have signed off on this deal and it’s reporting, I can’t establish who they are yet, but this does look like structuring to avoid the Neymar business paying tax so why get involved in that? What do Barcelona’s sponsors think about this? Will they take any action? In football terms is this all ok under Financial Fair Play rules?
The worrying thing for business is that stories like this feed the view that tax avoidance is rife. The challenge for responsible business is to separate itself from the excesses of tax avoidance and ensure that the Beps debate is a sensible one. That challenge will be significant over the next few months.