Colombian pop star Shakira (given name Isabel Mebarak Ripoll) faces trial for tax evasion in a Spanish court. Judge Marco Juberias found “sufficient evidence of criminality” and recommended that her case goes to trial for failure to pay 14.5 million Euros (about $15 million) in taxes to the Spanish government.
A critical factor in the trial will be whether Shakira was a Spanish resident between 2012-2014, the years she stands accused of committing tax fraud. To be considered a resident of Spain for tax purposes, an individual must be present in the country for more than 183 days during a calendar year. Earnings are taxed at 45% in Madrid, where Shakira took up residence at that time.
Shakira’s troubles began when Spanish tax agency inspectors used purchase receipts and social media posts from Spanish locations to piece together proof that the pop star was spending more time in Spain than she claimed on her 2012-2014 taxes. She was charged in December 2019 for tax fraud and denied wrongdoing. If found guilty, she faces fines and a possible jail sentence.
U.S. Expat Laws are different from Spain’s
Expat tax law differs per country. The results, in this case, hinge on whether Shakira was a resident during those three years. If an individual is present in Spain for 183 days, they’re a resident, and they must file. Determining someone’s presence can take some investigation.
So, could this same situation arise for a traveling pop star who was a U.S. citizen?
U.S. federal tax liability is determined based on whether an individual is a citizen of the United States. U.S. citizens must file a federal tax return for their worldwide income, regardless of where they live. According to today’s tax law, if Shakira had been a U.S. citizen, she would be required to file taxes. Cut and dry. No need for investigations of residency or checking of social media posts.
State tax liability is different. Three main factors determine state tax liability:
1) Whether an individual has established a foreign domicile overseas, meaning a legal and taxable residence.
2) Whether an individual maintains an abode in their home state
3) Whether the person is earning income sourced from that home state, e.g., investment accounts, rental income, or businesses with physical locations in that state.
In 2018, Real Madrid soccer player Marcelo Viera was sentenced to four months in jail and a 750,000 euro fine after pleading guilty to a 490,000 tax fraud scheme. Soccer superstars Lionel Messi, Neymar, and Cristiano Ronaldo all received fines in similar tax fraud cases within the last several years. Spanish law allows first-time offenders to serve probation for sentences under two years, so it is unlikely that Shakira would serve any time in jail if she is convicted.
While both the U.S. and Spain have clear determinations on why an expatriate can be taxed, it’s a matter of whether someone is a resident of Spain that makes for some complex scenarios. When determining whether someone owes federal taxes here in the United States, it’s a matter of citizenship.