The stormy departure of Lionel Messi from FC Barcelona was without doubt one of the big news stories of this summer. The man considered the best soccer player of all time had to leave his club because its finances could not meet his salary expectations in accordance with the terms of the financial fair play rules established by the Spanish league, La Liga.
Messi’s departure has been the subject of a multitude of articles and analysis from many, largely sporting, angles, but perhaps the taxation aspect has not been discussed to the same extent. It can be said with some certainty that tax was not a determining factor in the decision-making process of the Argentinian star, since there were many more significant factors to take into consideration.
However, if tax was not a determining element of Messi’s decision, it will be a factor that will bring extra comfort to the player when dealing with the colder Parisian winters at his new club, Paris Saint-Germain.
From the outset, during the years of his contract (two years plus the option of a third), Messi will be able to benefit from the French “inpatriate tax regime.” Broadly speaking, this regime allows him not to pay tax on 30% of salary received, and to pay tax on half the income that Messi will receive for his image rights, not in France but in the country where these will be generated (regardless of whether the country is considered a tax haven jurisdiction).
It should be noted that French commentators have speculated whether Messi can benefit from the inpatriate regime, because according to French legislation the regime must be requested at the start of, or during, the contractual negotiations, but in any event always before the agreement between the parties becomes effective. The speculation arises from the fact that the negotiations, or at least the public part, were concluded very rapidly (practically over a weekend) suggesting a reason the mandatory procedure may have been omitted. If the French club was not diligent in sending at least one message via email to the French tax authorities, it would not be able to benefit from this regime (article 155 B of the Code Général des Impôts (CGI)).
The next good news for Messi relates to the wealth tax, which in France is very limited in terms of the range of taxable events and tax rates when compared to the Spanish tax, so there will be less tax applicable from the outset. In addition, when Messi was a tax resident in Spain, he was taxed by personal obligation, that is, on all of his global wealth regardless of its location; in France he will only be taxed for assets that are located in French territory.
Further, according to the Double Taxation Agreement (DTA) signed between Spain and France, the player’s real estate located in Spanish territory will be taxed in Spain, so that real estate not located in Spain or France, or movable property, would not be taxed at all.
As we do not know the details of the player’s assets, we will let readers form their own conclusions about the tax savings on the wealth tax. To make a calculation, take into account that, according to Forbes magazine, in 2020 the Argentinian player became only the fourth sportsman to reach a career fortune of more than $1 billion.
If we stick only to Messi’s salary, which some media reports put at 35 million euros ($41 million) per year, this would have been taxed in Barcelona at a rate of 48%, while in Paris there will be an effective rate of 27% (inpatriate scheme), that is to say, a saving of 21% on the effective salary that he receives—without taking into account that 50% of his image rights will not be taxed in France, while they would in Spain.
We can therefore make our own calculations about the amount of tax that the player will save, and also the amount of tax that the Spanish treasury will lose, since, according to the media, the payments received from FC Barcelona in Spain were tax-free for the player, but “someone” (in this case FC Barcelona) was responsible for their payment to the Spanish tax administration.
The major loser in this transaction has undoubtedly been the Spanish treasury, which will no longer receive tens of millions of euros annually, having lost what, according to the Spanish newspaper El Periódico, was the number one taxpayer in Spain. Sergio Ramos, another emblematic player in the Spanish league who has also joined Paris Saint-German, will be in a similar situation to his new teammate, further eroding Spanish tax receipts.
Other interesting considerations, which we will leave for another article, relate to the player’s tax residence for 2021. According to article 15 of the DTA, it is necessary to remain for more than 183 days in one of the two states to determine tax residence. Messi flew from Barcelona to Paris on August 10, 2021, so it will be difficult to justify 183 days of residence in France in 2021; therefore other criteria will have to be used to determine his potential French tax residence in that year.
It looks like developing into an interesting battle between the tax administrations of both countries to attract Messi’s residence to their respective jurisdictions. From available data, it is likely that for 2021 Messi will be tax resident in Spain, even if he spends the second half of the year in Paris and will be employed by a French team.
Another consideration would be the tax treatment of the part of his salary (we assume small) that the player will receive in cryptocurrencies from the French club (the now famous “Fan Tokens” that, incidentally, have been revalued by 35% since Messi’s contract was signed).
Any benefit obtained by the player from the initial delivery or subsequent revaluation of those tokens will be considered as taxable income. How to declare it seems more complicated, since, as with all matters related to crypto assets, regulation is in its infancy. Furthermore, depending on the tax residence of the player, the tax treatment will again be different, as in Spain the general tax regime would apply, while in France there would be tax at a fixed rate (“flat tax”) of 30%. Another area of potential tax savings for Messi!
Everything related to the Argentinian star’s game is superlative and highly complex—so perhaps we should not expect the aspects of his taxation to be any different.
This column does not necessarily reflect the opinion of The Bureau of National Affairs Inc. or its owners.
Lluís M. Fargas Mas, PhD Finance and Tax Law, former VP Finance & Tax, Europe & Asia, Howmet Aerospace Inc., Non-Executive Director at Leclanché SA
The author may be contacted at: firstname.lastname@example.org