Why has Man United’s top man become involved in the latest tax witch-hunt?

Why has Man United’s top man become involved in the latest tax witch-hunt?

It is a storm that has already seen Cristiano Ronaldo threaten to leave the country, and amidst an atmosphere of uncertainty it is difficult to discern between speculation and fact. What is clear is that the charges levelled against both Ronaldo and Jose Mourinho are serious and potentially damaging for the pair.

The allegations put simply accuse the pair of failing to pay the correct amount of tax to the Spanish government during their respective times employed in the country. These shortfalls both relate directly to income generated through image rights, a portion of Spanish tax law that is both complicated and subject to constant review.

In the case of Cristiano Ronaldo, he has often contended that a number of his commercial deals are global and therefore do not require declaration in Spain. Instead, for tax efficiency he declares them through a venture in the British Virgin Islands and through subsidiaries of this in Ireland. A portion of this is still declared and taxed in Spain, but authorities have now deemed this sum to be insufficient.

Jose Mourinho is accused of a similar breach during his time employed as manager of Real Madrid, directly relating to the period of 2011-13. His management company was quick to release the following statement in relation to the charges: 

“Jose Mourinho, who lived in Spain from June 2010 until May 2013, paid more than 26 million euros in taxes, with an average tax rate over 41 per cent, and accepted the regularization proposals made by the Spanish tax authorities in 2015 regarding the years of 2011 and 2012 and entered into a settlement agreement regarding 2013.”

“The Spanish government in turn, through the tax department, issued a certificate in which it attested that he had regularised his position and was in compliance with all his tax obligations.”

Spanish tax laws changed in 2014, and both Ronaldo and Mourinho are believed to have made payments to the tax authorities in order to settle their apparent tax liabilities. In the case of Cristiano Ronaldo, he paid tax on close to 20% of his image rights; a figure he asserts is above what was actually required of him.

Why the witch-hunt?

The pair mentioned are far from the first and not the last in the recent Spanish crackdown. Foreign sports stars appear to be the main target; the likes of Messi, Neymar, Mascherano and Di Maria have all been implicated. Lionel Messi was actually convicted and fined for his part in a fraud case with his father. There appears to be a genuine attempt to make Spain less of the sporting tax haven that it was in the past and to bring it into line with its close European neighbours. Lost tax revenue is increasingly important for a country shackled by sub-par financial performance, where tax avoidance of the richest in society is increasingly a political issue. It is no coincidence that increased efforts to clamp down on loopholes and offenders have come during a recent change of government in 2016.

So what’s next for Ronaldo and Mourinho?

The most likely outcome is a financial settlement, something that would suit both parties, as issues like this are best solved quickly and without constant press coverage. Such an outcome need not imply an admission of guilt, but instead would prevent a lengthy legal process. It is highly unlikely that either case would lead to jail time, something that is rare for first time offenders in Spain. Moreover, there exists an interesting nuance in Spanish law whereby short jail times are not served, such as in the 21-month sentence handed down to Lionel Messi last year.

Will Ronaldo leave? His sudden outburst appeared to be exactly that, an emotional reaction. Aside from PSG or Manchester United, the potential destinations are limited, and for someone as ambitious as Ronaldo both moves would represent a step backwards. A move to the UK would certainly not be for tax purposes, and neither club would be able to offer the guarantee of silverware that he has at Madrid.

This won’t be the end of the tax crackdown, as the authorities in Spain continue to flex their muscle. For Mourinho and Ronaldo, it will likely be business as usual come August, with the focus switching from private affairs to the lofty ambitions of their respective clubs.

Is a Mourinho/ Ronaldo reunion at United still a pipe dream?