Double Agents A Handy Tax Trick Used By Agents and Players

For years, England's Premier League clubs have been using the same trick to avoid tax payments. But tax authorities are starting to pursue the cases -- and German star player Michael Ballack and agent José Mourinho have both attracted their attention. By DER SPIEGEL Staff

German footballer Michael Ballack
REUTERS/ Action Images/ Benedikt Rugar/ DER SPIEGEL

German footballer Michael Ballack


The last of Michael Ballack's 167 appearances for FC Chelsea came at Wembley Stadium.

It was the final of the FA Cup and his team was going up against Portsmouth FC that day in May 2010. In the first 30 minutes of play, Chelsea slammed the ball into the crossbar twice and the post once. And then, shortly before the end of the first half, Kevin-Prince Boateng slammed into Ballack, tearing ligaments in his ankle and making it impossible for the German team captain to participate in the World Cup in South Africa that year. Chelsea ended up winning the FA Cup final, giving Ballack his Double, but his career on the German national team and in the Premier League was over.

Six years later, Ballack's time at FC Chelsea appeared to have caught up with him once again.

In April 2016, Her Majesty's Revenue & Customs (HMRC) opened an investigation into Ballack and the former player agreed to settle a few months later. "We have reached what I think is a favorable settlement agreement given the HMRC's starting position," Ballack's tax adviser wrote. Ballack, who had retired from football by then, was required to pay back taxes of just over 100,000 pounds because services performed by his agent had been falsely declared. But the matter didn't end there.

The Crack Down

In recent years, British tax inspectors have been systematic in their efforts to crack down on the Premier League, a focus that the HMRC confirms publicly. The agency has "brought in £332 million in extra tax by tackling non-compliance in the football industry," the authority stated in response to a request for comment from the journalism network European Investigative Collaborations (EIC). The agency says that tax inspectors are currently investigating 171 players, 44 football clubs and 31 agents. They include some of the biggest names in the industry, both past and present.

Hardly anybody likes paying taxes, but footballers and club officials seem to be especially allergic to them, a reluctance that has been clearly and repeatedly demonstrated by Football Leaks revelations over the past several years. Cristiano Ronaldo and Lionel Messi, for example, have both been convicted of multimillion-euro tax offenses.

Portuguese star trainer José Mourinho also popped up in the course of the HMRC investigations into agent commissions. Just like in Ballack's case, the investigation centered on a trick that appears to have been used hundreds of times in England. The key questions are: Which party to the contract declared the agent? And who did that agent actually represent?

Normally, agents negotiate on behalf of the player and collect a commission for their work. That commission is often paid by the club as part of the player's salary. Under British law, however, a player is required to pay income tax and sales tax on that commission and the club also has to pay its social security contributions. But when a club hires an agent, it is allowed to book the commissions as normal business expenses, resulting in a considerably lower tax burden. HMRC auditors, though, often find that agents allegedly working for the club were very clearly representing the player -- and were only attributed to the club to save on taxes.

The multimillion-pound question they ask during their audits is: Did the agent attributed to the club really advise the team or was he representing the player?

'Not Credible for Tax Purposes'

It was particularly easy for tax officials in those cases involving well-known player agents who were suddenly listed as having advised a club. In such instances, clubs and players had a tough time trying to talk their way out of it. The situation became more challenging when the agent was alleged to have been acting on behalf of both parties.

"It is not credible for tax purposes that some part of the fee is not allocated to services for Jose," an FC Chelsea employee warned in a June 2013 email, referring to José Mourinho's impending return as Chelsea's trainer. The prominent Portuguese agent Jorge Mendes had not hidden the fact that he was representing Mourinho. And Chelsea, of course, was also perfectly aware of the arrangement, and clearly spoke of Mendes as being Mourinho's representative.

Nevertheless, the contract was to include a clause that the trainer would only be responsible for 10 percent of Mendes' commission, which would have meant that the agent was working almost exclusively on behalf of the club. Mendes' lawyer, Carlos Osório de Castro, though, crossed out even that clause from a draft version of the contract.

The club protested cautiously, with a club representative writing to Osório de Castro, "10% is the absolute minimum we feel we can put in" the contract. "And even then we will need to argue strongly with the tax authorities." Recently, the representative noted, the authorities had often refused to accept the splitting of agent fees that strongly deviated from a 50-50 split. It was an uncomfortable truth for Mourinho. "Jose will have to pay tax on the 10%," the club employee wrote apologetically.

A Grudging Payment

Put simply: Top-agent Mendes negotiated a multimillion-pound contract for star-coach Mourinho -- and Mourinho was faced with paying a 10th of the agent provision himself. And taxes on top of that. An outrage! Although EIC issued requests for comment, none of those involved -- neither the club nor Mourinho nor Mendes nor Osório de Castro -- provided a statement. The Football Leaks documents indicate that the Portuguese side ultimately relented and grudgingly agreed to pay the tax on 10 percent of Mendes' commission.

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Perhaps Mourinho would have been better advised to negotiate a net salary with FC Chelsea. That's what Michael Ballack did back in 2006. Ten years later, he would use the agreement as his trump card when the HMRC demanded back taxes from him.

When Ballack transferred to London after the 2006 World Cup, he negotiated a guaranteed net salary with Chelsea worth 32.5 million euros over four years. Ballack's longtime agent Michael Becker received a commission of 6.5 million euros as part of the deal -- but appeared in the contract documents as an alleged adviser to FC Chelsea. That prompted the HMRC to demand the payment of back taxes in 2016.

'I Look Forward to Receiving Payment'

"Dear Sirs," Ballack wrote to his former club shortly before Christmas and went on to demand that Chelsea reimburse him for the back payment. He argued that the contract he signed with the club was for a net salary and that "this investigation was brought about solely by the HMRC investigation into the Club and its agents fees." Given that he had been forced to pay 103,403 pounds to HMRC and 24,000 pounds to his tax advisers and his attorney, he was now 127,403 pounds short of the salary he had been guaranteed in 2006. "I look forward to receiving payment," Ballack wrote in closing.

Michael Becker didn't respond to questions posed by the EIC network about him or his client.

Ballack's claim against the club remained open for several months. But in July 2017, an agreement between the club and its ex-player was reached: Chelsea would pay the Ballack 150,000 pounds.

Why so much? Because Ballack would have to pay taxes on that payment before it landed in his account. And those taxes were to be paid by the club. Of course.

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