View this post on Instagram
Tax rules are complicated! You just need to give a quick look at how voluminous the tax code is. But, despite its complexity, you may still engage in certain strategies to reduce your tax liability through tax planning. But beware that tax authorities will quickly disregard strategies that seem to be abusive tax shelters. That was the case of Latin pop singer Shakira, who, despite being a tax resident of Bahamas, a country that offers significantly low tax rates, had become a tax resident of Spain.
Spanish authorities indicted the artist for tax fraud. The indictment comes as no surprise when we look at tax evasion criminal charges filed against Leonardo Messi, Cristiano Ronaldo, and other soccer stars during the last couple of years. In Shakira’s case, Spanish authorities argued that, based on the number of days she spent in the country, Shakira had become a Spanish tax resident for the years 2012 through 2014. It seems that Spanish authorities decided to take a closer look at Shakira’s international tax planning arrangements after she was named in the “Paradise Papers” leaks. The documents leaked showed that she had transferred £30 million in musical rights, intellectual property, and trademarks to an entity in Malta. Spanish authorities challenged the fact that Shakira had a tax residency in the Bahamas.
Foreign nationals coming to the United States are no stranger to tax strategies. Mostly because the U.S. taxes its citizens and residents on their worldwide income. Foreign nationals may also be subject to worldwide taxation based on their physical presence in the country. Most countries in the world, including Spain, have similar tax rules. Under Spanish regulations, a foreign individual becomes a tax resident by spending more than 183 days in the country. In Shakira’s case, Spanish tax authorities argued that she had become a tax resident for the years 2011 through 2014, and as a result, she has become subject to Spanish income tax on her worldwide income.
Shakira settled these issues but has left us with good lessons to learn. You do not have to be a celebrity to encounter these issues; many people must live in different countries because of their professional engagements. But Shakira’s case is a great example of how onerous, time-consuming, and serious dealing with a tax issue can be. Please remember that the determination of someone’s tax residency is fundamental in determining someone’s tax obligations with a specific country. It often involves checking the individual’s physical presence, verifying family ties, investigating personal affiliations, reviewing applicable treaty provisions, etc. Thus, individuals who travel and live in several places should become familiar with those jurisdictions’ laws to avoid unintended tax consequences.
