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Madrid coach Carlo Ancelotti is in trouble with Spain's tax office. He joins an illustrious list

BARCELONA, Spain (AP) — Real Madrid coach Carlo Ancelotti has become the latest high-profile soccer figure to come under scrutiny of Spanish authorities for allegedly not paying his fair share in taxes.

While the Italian manager can still win his case in court, or make a deal to avoid trial, Spain has not flinched when it comes to taking on superstars like Lionel Messi, Cristiano Ronaldo and Jose Mourinho — and even pop icon Shakira — over the past decade for having tried to hide some of their earnings.

The steady stream of celebrities to have been dragged in front of a judge as tax cheats coincided with Spain’s slow recovery from a painful economic downturn from 2008-13 during the global recession.

Spain avoided a humiliating bailout that Portugal and Greece had to accept, but it did slash its public spending on public education and health services. That created widespread discontent, protests and eventually spawned an anti-austerity political movement that is still relevant today.

Pere Soldevila, lawyer and professor at EAE Business School in Barcelona, said Spain has since then gone after these stars to send out the message that even the privileged have to pay.

“Politically, Spain’s two major political parties sold the idea that to the citizen who was suffered from spending cuts that they were going to go after those who made the big money,” Soldevila said. “People who have trouble making ends meet like that.”

And even though Spain’s economy is now growing strong, the pursuit of high-profile fiscal wrongdoing continues. The policy that Spain's Tax Office started in 2012 by publishing a yearly list of people who owed the most in back taxes has stayed in place as a public shaming maneuver.

Ancelotti’s case, like those of Messi, Ronaldo and Mourinho, among others, is not about the salaries earned from their clubs. It is about the revenues they make from image rights, when they cede a photo to a company for a publicity campaign, for example.

Many professional players and managers set up a company that owns the rights to use their name and image for commercial purposes. But Spain’s tax authorities have targeted players who use shell companies in tax havens.

Rafael Fernández Montalvo, a partner at the Cremades & Calvo-Sotelo law firm, explained that the huge difference between taxes for high-wage earners and taxes paid by businesses in Spain creates the temptation for some soccer players to try to use shell companies.

“The existence of a progressively high income tax, which in Spain can reach 51.4%, compared to business taxes which are set at 25%, is traditionally the principal cause to explain why professionals recur to setting up companies under which they try to evade paying higher income tax rates,” he said.

Prosecutors accuse Ancelotti of using, for example, one company that lacked “any real (economic) activity” in the Virgin Islands as part of an alleged scheme to defraud 1 million euros made from image rights in 2014 and 2015. Prosecutors accused Ancelotti of two counts of tax fraud on Wednesday and are seeking a prison sentence of four years and nine months.

Ancelotti proclaimed his innocence, arguing he was not a fiscal resident of Spain during part of that time. Prosecutors disagree.

“I already paid the fine, the money is with them, and now the lawyers are talking to try to find a solution,” Ancelotti said. “Let’s see what the judge says.”

Martin Jacob, professor of accounting and control for IESE Business School in Barcelona, said that it looks like Ancelotti has presumably erred in his fiscal planning.

“Ancelotti cannot tell us that his image rights were created in the (Virgin Islands). It is a tough story to tell,” Jacob told The AP. “I mean look at LeBron James. It would be hard to argue his image rights were created in the Cayman Islands.

“I have the feeling that they (celebrities in Spain) thought that 10, 15 years ago this could work, and maybe it worked back then, but nowadays it is clear it doesn’t.”

The list of soccer players busted for tax evasion in Spain also includes Luka Modric, Javier Mascherano, Marcelo, Alexis Sanchez, Ricardo Carvalho, Angel Di Maria, and Radamel Falcao. The only high-profile player to be acquitted of tax fraud was Xabi Alonso.

Popular actors and singers in Spain have also been successfully pursued. The biggest star of them all, and that one whose fandom rivals or even tops Messi and Ronaldo, was Shakira, who used to live in Barcelona. The Colombian singer accepted a deal that included her acknowledging she did not pay enough taxes.

None of these celebrities have gone to prison. They have all paid fines to have their sentences limited to under two years, which enables a judge to suspend the sentence because they are first-time offenders. But the fines sting, and their legal record and reputation are tainted.

About the same time Spain heightened its scrutiny, France tried to respond to the popular discontent caused by the global recession by implementing a 75% tax on the super-rich that included targeting soccer’s biggest earners. France’s soccer clubs protested, saying it would drive away talent, and the tax was eventually abandoned.

Otherwise, there have been relatively few cases of high-profile athletes getting into tax trouble in other European countries.

French authorities are carrying out an investigation over allegations that Paris Saint-Germain received favorable tax treatment when Neymar joined back in 2017 for a record 222-million-euro transfer deal. Anti-corruption officers searched France’s finance ministry in January over suspicions that some politicians helped PSG obtain special treatment to avoid paying millions.

German tennis great Boris Becker got a two-year suspended sentence for tax evasion and attempted tax evasion in Germany in 2002 when he tried to claim he lived in Monte Carlo while actually residing in Munich. More recently, Becker served time in Britain for hiding assets after he was declared bankrupt. Steffi Graf’s father also spent time behind bars for tax evasion.

Germany also saw Bayern Munich club president Uli Hoeness step down before serving prison time for avoiding the payment of some 28.5 million euros ($31 million) via an undeclared Swiss bank account — and then get re-elected to his post after being released.

The most notorious case in Italy was two decades ago, when tax police seized a pair of Rolex watches from Maradona at a news conference outside Naples in 2006 and a pair of expensive earrings three years later in Bolzano.

Jacob, the accounting expert, said he would not be surprised if there is also what he called a “network effect” of bad advice, or bad contacts, being spread among the soccer elite in Spain.

“I am pretty sure there is a lot of word of mouth. Because setting up an image company in the Bahamas is a pretty peculiar thing. It is not something you go to the supermarket to buy,” he said. “Company CEOs talk to each other and share knowledge, and I am pretty sure football players share knowledge as well.”

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Sam Petrequin in Brussels, Andrew Dampf in Rome, and James Ellingworth in Duesseldorf, Germany, contributed to this report.

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AP soccer: https://apnews.com/hub/soccer