Freedom Rings! ...In Spain: Messi should celebrate that he was not tried in the United States.
Ah, Independence Day. Just last week our nation celebrated its declaration of independence and the country that was borne from that historic decision, one of freedom, one of fairness, and one of justice. At least that’s what Americans prefer to think, particularly on July 4th. Yet, when it comes to taxes, especially the punishment for failure to pay taxes, the good ol’ U.S. of A. falls short. Way short. Very recently, a high-profile tax conviction in Spain exemplifies the stark contrast of the U.S.’s obsession with incarcerating citizens that don’t pay taxes to the government with, essentially, the rest of the world. International soccer star Lionel Messi was convicted just Wednesday of tax fraud for using offshore companies to avoid paying Spanish taxes on advertising contracts.[1] Yet, despite being sentenced to 21 months in prison, he is unlikely to serve any. Under Spanish law, any sentence under two years can be served under probation.[2]
Sometimes, it pays off not being an American. In the United States, when someone fails to pay their taxes they risk being charged with defrauding the U.S. government.[3] Unlike in Spain, and despite our claim to champion freedom on behalf of the world, this charge is a felony that very-commonly results in imprisonment—in addition to exorbitant fines that are sometimes more than double the unpaid tax. In fact, in 2014, the IRS earned 3,110 convictions, and sentenced about 80% of those to prison[4] for an average of 31 months.[5] One only has to look to the famous conviction of Wesley Snipes to see how the United States approaches high-profile tax cases differently than Spain: Snipes was sentenced to three years in prison—which he served—despite prevailing on most of the charges brought against him. Snipes’ sentence was miniscule compared to what the IRS requested. On the other hand, Messi lost his case, but was sentenced to less time in prison than Snipes and likely will avoid serving any time at all.
But, comparing two cases from two countries is too small of a sample, so let us get a bigger picture. In 2014, the U.K. government sentenced about 220 people to prison for tax evasion, which also represented a 29 percent increase in convictions from earlier years and a decrease in the average sentence to 17.7 months.[6] Evidently, the United Kingdom usually treats tax evasion as a civil offense, which does not result in incarceration. The United States, alternatively, views tax evasion as a criminal offense and incarcerates the vast majority of those convicted. For a second comparator, and to introduce a non-western country into the mix, not a single person has been jailed in India for tax evasion.[7]
Now you may be thinking that the population of the United States may simply violate tax laws more frequently than in the United Kingdom, which may be to blame for the differences in citizens incarcerated for tax evasion, or that U.S. citizens are taxed heavier so there is more incentive to evade the taxes. In fact, the opposite is true. The United States has both a smaller shadow economy than the United Kingdom (the percentage of the economy that does not pay tax) and a lower tax rate.[8] In other words, a larger portion of the U.K. economy evades paying taxes, but the United States has incarcerated nearly 30 times more people for tax evasion.
Admittedly, these metrics and comparisons oversimplify what is a complex issue that incorporates politics, law, social norms, personal and societal values. Nonetheless, the outcome of Messi’s trial would never have occurred in such a fashion in the United States. Messi’s case serves to underscore the drastic difference in how the United States approaches punishing tax evasion compared to the rest of the world.
–By Tony Nasser, Esq., Barnes Law
Tony Nasser is an attorney with Barnes Law, licensed to practice law in California.
The opinions expressed are those of the author and do not necessarily reflect the views of the firm, its clients, or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
[1] http://www.nytimes.com/2016/07/07/sports/soccer/lionel-messi-taxes-prison-suspended.html?_r=0
[2] http://www.marketwatch.com/story/barcelona-star-lionel-messi-sentenced-to-21-months-in-prison-for-tax-fraud-reports-2016-07-06
[3] See 26 U.S.C. § 7201.
[4] https://www.irs.gov/uac/statistical-data-for-three-fiscal-years-criminal-investigation-ci
[5] https://www.irs.gov/PUP/newsroom/FY-2015%20Enforcement%20and%20Service%20Results%20--%20web%20version%20Jan.%202016%20-%208%20by%2011.pdf
[6] https://next.ft.com/content/5d58f0e2-0788-11e5-a58f-00144feabdc0
[7] See http://articles.economictimes.indiatimes.com/2015-11-19/news/68412231_1_tax-department-tax-amnesty-scheme-tax-evasion
[8] http://investorplace.com/investorpolitics/10-worst-countries-for-tax-evasion/#.V36sG7grJZE