When one of the best European strikers, the Bosnian Edin Džeko, was a player for Manchester City, millions of Euro paid for his “image rights” were funneled to a secret company in the United Arab Emirates, which saw him avoiding having to pay 1.8 million euro in taxes to the British state. Since then the British tax authority has opened investigations into Džeko’s taxes on his image rights and agent fees
In the winter of 2011, Edin Džeko was one of the most wanted players in Europe, when Manchester City signed him for a massive 33 million euro from Wolfsburg. The then 24-year-old striker, a sporting hero of Bosnia & Herzegovina and the greatest scorer of all time for his national team, was a fierce attacker. Subsequently, he proved his value in the challenging Premier League, which he left formally for AS Roma in 2016. Still, he reached another peak in the 2017/18 season, when he played in the semi-finals of the Champions League for the Italian club.
However Football Leaks documents obtained by Der Spiegel and shared with Nacional and other partners in European Investigative Collaborations (EIC) reveal that he doesn’t only compete with the back four on the pitch, but also with the tax authorities.
According to documents viewed by Nacional, Džeko and his agents funneled at least 3.5 million euro of his image rights to a secret United Arab Emirates company. If he had reported this sum as personal income to UK tax authority HMRC, he would have needed to pay 1.8 million Euro of taxes in UK. The player received also benefits in kind from Manchester City, which paid the fees for his agent Irfan Redžepagić. After the HMRC inquiry, the club paid additional taxes on behalf of Džeko.
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After Džeko played three and a half seasons in the German Bundesliga with Wolfsburg, on 6 January 2011 he fulfilled the dream of many young players from the Balkans. In the first half of the season with Manchester City, the club reached third place in the Premier League and won The Football Association Cup. At the end of the next 2011/12 season, he was part of the winning team in the Premier League.
The contract with the leading English football team brought him a high salary. According to his employment contract, Džeko was entitled to a basic salary spanning from 4.8 to 5.8 million euro gross from January 2011 to August 2015. Additionally, he received an “individual loyalty bonus” of 1.17 million euro gross each season. And on top of this he was entitled to many bonuses for appearances and goals. Altogether he was entitled to receive at least 32.2 million euros gross of basic salary for four seasons and half. After taxes on income, the net sum of his basic salary for this period was at 15.9 million euro.
But on 24 August 2011, after his first half season in new club, Manchester City signed a secret contract with company ED Management Group FZE, registered in Fujairah, one of the seven Arab Emirates.
A subject of this document is “License agreement in relation to image rights of Edin Dzeko” and on behalf of the Emirates company it was signed by its managing director Naser Hukić, a partner of Džeko’s agent Irfan Redžepagić.
According to this agreement, the company from Fujairah, a free zone where there is zero percent corporate tax and companies do not need to file annual accounts to tax authorities, was entitled to 3.3 million euro of payments for Džeko’s image rights used by Manchester City. Image rights are a form of economic right which cover all commercial and public appearances of a player on shirts, TV spots, commercials and video games.
The secret agreement reveals that the Emirates company received 750,000 euro annually for these image rights, paid in quarterly installments of 187,500 euro. Many invoices signed by Naser Hukić from 2011 to 2015 confirm that 3.3 million euro have been wired to the Emirates NBD bank in Dubai, where ED Management group FZE had a bank account. When Manchester City transferred its image rights of players to a new company Fordham Sports Image Rights Limited in 2013, this didn’t stop the flow. Invoices were just addressed to the new company.
This was Džeko’s additional earnings beside his salary as payment for his global image rights, but which seems to remain untaxed in the UK – or elsewhere.
Almost 60 million euro salary for four seasons
On 20 August 2014 Edin Džeko extended his employment agreement with Manchester City until the end of the 2017/18 season, what makes him one of the highest paid footballers from the Balkans. A new agreement brought him a higher salary, from 5.2 million GBP for the 2014/15 season to 6.6 million GBP in the 2017/18 season, or 25 million pounds gross combined. And this is only the basic fixed salary.
It is important to note that the first employment contract of Džeko with City from 2011 was nominated in euros, but the new one was in pounds, which brought him an initial 25 percent increase, only because of the difference in the currency exchange, thus his new basic fixed salary for next four seasons was at 31.2 million euro.
But a spread-sheet created in July 2014 in Manchester City, during negotiations with his agent Irfan Rdežepagić, reveals the real dimensions of the expected salary increase of the Bosnian attacker until the end of this contract.
According to this estimate, Džeko’s salary over four seasons would reach a total minimum, without bonuses, of 48.5 million euro or a total maximum, with all bonuses, of 58.2 million euro or on average 14.5 million euro gross.
In net terms, after 45 percent UK taxes, he would earn 26.5 million euro, without bonuses, or an astonishing 32,7 million euro with all bonuses in four seasons on average or 8 million euro annually after taxes. If he scored no goal and had no appearances in Manchester City, he would still earn the minimum salary of 6.6 million euro after taxes annually.
With such a high salary, Džeko was paid better than many other players. For example Real Madrid star midfielder Luka Modrić, now the best FIFA player of 2018, also renewed his employment contract with his club in August 2014. This brought Modrić a minimum salary of 10 million euro gross or 5 million euro annually after taxes or only 75% of Džeko’s minimal fixed salary. This makes Džeko one of the best paid footballers from the Balkans.
Secret payments to UAE company increased
On 20 August 2014, Džeko’s image rights contract, which outlines the secret payments to ED Management Group FZE, increased in value. As in employment agreements, the currency changed. Instead of 750,000 euro, he was entitled to 750,000 GBP annually, which brought him initial increase of 25 percent again.
Since August 2014 the Emirates company was entitled also to 25 percent of net revenues generated from signing contracts with personal sponsors. Two years earlier, on 30 April 2012, Adidas International Marketing B.V., Manchester City Football Club Limited and ED Management Group FZE signed an agreement which, for example, brought Džeko an additional 300,000 euro in 2012, but at that time, he was not entitled to receive any share of this sum, as this was revenue of Manchester City, to whom he sold his image rights. But after the amendment, he had the possibility to earn additional share from personal sponsors on top of the basic annual image right fees which all ended in United Arab Emirates. However, it is not known how much Džeko earned from personal sponsors since August 2014.
Invoices sent by ED Management Group to Fordham Sports Image Rights Limited, available in the Football Leaks documents, reveal they were nominated in euros till 20 August 2014 and in pounds afterwards. It is interesting to note that all invoices signed by the director of the Emirates company, Naser Hukić, for that period were formally issued on 9 August 2015, just two days before Džeko signed the new loan/transfer contract with AS Roma.
Therefore, in August 2014, Džeko won an initial 25 percent increase of his annual image rights fees from 750,000 euro to 937,500 euro, in comparison to the initial contract from 2011. As this increase was effective from August 2014, Džeko earned – because of the change in currency – at least an additional 187,500 euros on top of the 3.3 million euro in image rights contracts which ended in Emirates, before he he was loaned to AS Roma a year later in August 2015. So, the ED Management Group FZE should have received a minimal amount of 3.5 million euro from Manchester City.
Transferred to AS Roma because of high salary
Džeko’s high salary had consequences. On 8 July 2015, the Manchester City Director of Football Txiki Begiristain received the following message about Edin Džeko from Walter Sabatini, Director of Football of AS Roma:
“I would like you to know that AS Roma is not in the position to enter into a bidding negotiation for the aforementioned player but we could take over his contract which would represent for us a wage commitment (spanned over five years) of approx. 60 million euro.”
“As I mentioned, we are not able to hold a normal negotiation, but we can only offer you an amount of 5 million euro which would constitute for you merely a kind of compensation because I perfectly know that the value of the player is different,” was the initial offer from Italian club, which at the end agreed to a four million loan fee for the 2015/16 season and an additional 11 million euro fee for the permanent transfer of Džeko a year later. Besides fixed loan and a transfer fee of 15 million euro, Manchester city was entitled also to 3 million euro in possible bonuses.
The national hero of Bosnia had another issue with the United Kingdom. During his transfer from Wolfsburg to Manchester City his agent Irfan Redžepagić represented both Manchester City as engaging club and Džeko as a player’s agent. This double representation by Redžepagić, who was a licensed FIFA intermediary by the Bosnian Football Federation, had been reported to The Football Association. For services for both parties, the club and the player, he was entitled to an agent’s fee of 1.15 million pounds or 1.4 million Euro.
However, Džeko did not pay a penny for the services of his agent. Even taxes on this sum were paid by Manchester City on Džeko’s behalf. According to a “player consent to agent providing services to the club”, “conflict of interest declaration form” and “agent declaration form”, all signed on 3 January 2011, three days before transfer from Wolfsburg to Manchester in 2011, the total fee to Redžepagić was paid by Manchester City.
However, such a payment by the club to a player’s agent is, in many countries, including the UK, treated as “benefit in kind”. Value added tax should be paid on this sum in the UK, as well as income tax and social security.
HMRC special department investigation
This attracted the attention of the Special Investigations Department of Her Majesty Revenues & Customs (HMRC). In 2012 HMRC opened an inquiry into the taxation of many Manchester City players, including Edin Džeko. They looked both into his image rights earnings and the agent fees for Redžepagić.
The inquiry by HMRC became a significant issue among Manchester City’s leading managers, but one of them still said Džeko could engage in tax avoidance.
During negotiations with his agent Redžepagić for the 2014 employment contract renewal, City’s Head of Football Administration Andrew Hardman received the following message from one of his subordinates on 16 July 2014:
“A couple of weeks ago, we spoke on the phone about Edin’s Image Rights Contract. I was with Naser at the time and I have since met with both he and Irfan Redzepagic to discuss matters further.
Naser has sent to me the copy Contracts I required. As mentioned to you, HMRC are actively investigating the Image Rights issue in Edin’s case. In their opening letter, they state the correct name of the Dubai Company and I wonder just how they were able to do that.
Is it possible that MCFC have already been approached by HMRC for copies of both the Employment Contract and the Image Rights Contract? If so, would you be able to confirm that copy Contracts have been provided to HMRC, please?
If this is not your pigeon, (possibly the other Andy? [Widdowson]), would you mind forwarding my inquiry on to the right person?
You may be aware that HMRC are looking in detail at many players with Image Rights Contracts and I fully expect that all future cases will be investigated, almost as a matter of course. That is not to say that such Contracts should be completely avoided, necessarily, but I would most certainly bear in mind that whatever arrangements are put in place, they will almost certainly be critically examined.”
The next morning on 17 July 2014 discussion on taxes and HMRC investigation intensified. In an email with the subject “Edin Džeko” Txiki Begiristain send to Andrew Hardman the following note:
“As we spoken yesterday, I need to know if we can do an agent’s contract which avoids to pay taxes by the player. If not, I would like to know how much Edin should pay on taxes in our last proposal (attached).”
Four hours later Hardman answered:
“I don’t think we could do an agreement that could avoid the tax position for the player. My reason for this is due to the history around the acquisition of the player whereby a dual representation agreement was used with Irfan Redzepagic was acting for both parties. Under this agreement it was stated that the Club would be responsible for any applicable taxes relevant to the charges for the player and we did this (and are still doing so) by way of a direct payment to the tax authorities each year.“
He added Manchester City has received notification from the player’s tax advisor that the tax authorities are specifically looking into his tax affairs including image rights.
Hardman attached a spreadsheet indicating tax impact of Džeko’s higher salary to email.
According to this document estimates of fixed salary and easy bonuses for the next four seasons from August 2014 to August 2018 span from 9.3 to 13.1 million Euro or 48 million euro gross combined. There are also fees for player’s agent Redžepagić services during 2014 contract renewal.
Irfan Redžepagić has been entitled to earn 2.5% of Džeko earnings in four seasons or 1.2 million Euro in the form of agent fees. And the tax impact of Džeko increase to salary in this spreadsheet is estimated at 1.1 million Euro over the four seasons all paid by Manchester City.
The Finance director of Manchester City Andrew Widdowson who received Hardman’s message in copy, responded soon: “We need to be very careful with this. I agree that we deal with it in the way that Andy H[ardman] is suggesting. If we don’t then HMRC will just ask for the tax anyway and apply penalties and interest. They are very aggressive – which is a problem when they also have power too.”
As revealed above Džeko’s agent Irfan Redžepagić received 1.15 million GBP (1.4 million Euro) in agent fees for his transfer transfer from Wolfsburg in 2011 and was entitled to 2.5 percent of the estimated player’s salary over four seasons for 2014 contract renewal in the sum of 975,000 GBP (1.2 million Euro) in total. Therefore he was entitled to 2.6 million euros of all agent fees from Manchester City. As Džeko moved on loan to Roma after the first season under new contract, in August 2015, agent was thus entitled to receive 2.5 percent, or 242.500 euro, from City only for the 2014/15 season. Then AS Roma took over Džeko’s salary and probably Redžepagić’s agent fees.
However, what is still not clear is how HMRC’s inquiry by the Special Investigations Department ended and how much taxes Džeko paid on his global image rights in Emirates, worth at least 3.5 million euro, which were funneled to a secretive company in Fujairah. From available documents, it seem that neither Džeko nor City allocated any share of these 3.5 million euro for the use of his image in the UK and paid no taxes there. But according to our calculations, if he would report this sum as personal income to HMRC, he would need to pay 1.8 million Euro of taxes in UK.
“We do not comment on identifiable taxpayers,” HMRC responded to detailed questions sent by EIC partner. “HMRC works closely with football clubs to ensure payments made to their agents during the renegotiation of a contract or club transfer are taxed correctly. We actively challenge any payments we consider not to be realistic and ask for evidence to prove legitimacy of any arrangement.”
“HMRC rigorously enforces the rules and has brought in £332 million in extra tax by tackling non-compliance in the football industry. We’re carrying out visits to every Premier League club and most football league clubs, along with their players. We’re currently making enquiries into 171 footballers, 44 football clubs and 31 agents for a range of issues, including image rights abuse,” HMRC added.
Manchester City responded it would not comment “out of context materials purported to have been hacked or stolen from City Football Group and Manchester City personnel and associated people. The attempt to damage the Club’s reputation is organized and clear.”
Edin Džeko, contacted through AS Roma, managing director of ED Management Group FZE Naser Hukić and agent Irfan Redžepagić didn’t respond to requests for comment.
Džeko’s safe tax oasis in desert
During one of most brutal city sieges in modern times, when Sarajevo was bombarded with artillery fire between 1992 and 1995, Edin Džeko made his first steps into football. He was only six years old when the war started, but he survived and become one of the best talents born from dangerous conditions. Ten years after the end of war, in 2005, Džeko left local club Željezničar to the Czech Republic and finally succeeded in his sporting career in Germany. Football Leaks documents reveal that he won financially too, also with avoiding taxes.
War-torn Bosnia and Herzegovina never recovered from the bloody war in nineties. In the time of Yugoslavia, Sarajevo was a home of world most liberal, modern and secular Muslim population, however in recent years it has become a popular destination for many rich people from United Arab Emirates, Saudi Arabia, Kuwait and other oil-rich countries from the Arabian peninsular. They are intensively buying real estate and building exclusive condominiums only for themselves, where they can enjoy during visits and holidays. In this way rich Arabs, used to the stultifying heat of the desert, created nice retreats to enjoy in the green suburbs of Sarajevo, with beautiful views over surrounding mountains scattered with forests, which seems like never-ending oasis. Meanwhile, the local population continuously suffer from 40 percent unemployment, rife corruption, organized crime and incompetent government.
It seems that Bosnia & Herzegovina’s national footballing hero has chosen to move in the opposite direction – from Sarajevo to Fujairah in the United Arab Emirates, which is surrounded by endless desert. This can be said for at least 3.5 million euro of his untaxed funds. In reality, Edin Džeko is living and playing in one of the best Italian clubs in the “eternal city” and can enjoy “la dolce vita” as a multi-millionaire. However, in the meantime, his personal funds enjoy a zero-tax hideout in the Arabian desert.
(the author devotes this article to memory of the Bosnian journalist Esad Hećimović)
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