Shakira Tax Haven Strategy Explained (she only paid 2% tax)

Shakira is in trouble. But how did she get there? For this, we will need to go back to 2008. This was the era where Shakira topped the, charts, album after album. And with that, came a lot of money. She was named the top-earning women in Music. by Forbes that year. And when you make that much money, it’s. only natural to think about taxes. And think about tax, she did. If she was a tax resident of the United States and operated as a sole proprietor she would have been subject to a marginal tax rate of. close to 50%. But the key was Luxembourg. Shakira incorporated a subsidiary called Ace, Entertainment in Luxembourg and transferred over all her image rights from related Maltese. subsidiary that Shakira herself wholly-owns. Shortly after incorporation, Ace Entertainment signed the 2008 contract with Live Nation, guaranteeing Shakira €300 million over 10 years. This would mean that all associated income would be flowing into Luxembourg rather than to Shakira herself. And this was purposefully crafted so that. Ace Entertainment could take advantage of the Patent Box Regime, a tax rule introduced, by Luxembourg in early 2008 to incentivize research and development by exempting 80%. of income generated from qualified intellectual property, from taxation. The result? An effective tax rate of around 5% However, 5% was apparently also too high for. Shakira. So she took one step further and, through, Ace Entertainment, negotiated with the Luxembourg tax authorities to reach an agreement to instead,, pay 2% tax on her profits. But there is still a problem, if the money, then went directly from Luxembourg to the United States, Shakira would still be subject,

to the 50% marginal tax rate on repatriation. Because of that, separate from the Luxembourg, structure, Shakira went and established tax residency in the Bahamas and purchased a $1.1, million house in Nassau. Later on during the tax investigation in Spain,, the authorities recognized that the home purchase was simply a smoke screen and the inspector, in charge went as far as saying that “the only requirement for tax residency in the Bahamas is the purchase of property; the more expensive the better, because if it exceeds, a certain amount, the paperwork is pushed through faster”. Now going back to the profit generated in Luxembourg, rather than sending it directly to the United States, she instead routed the. money to a company located in the British Virgin Islands, then to another company in the Cayman Islands, and finally to the Bahamas, where she claimed tax residency. These countries were all tax havens that don’t tax money coming in and money going out of the country, making this whole transaction, tax-free. And this is how Shakira went from 50% tax rate down to 2%. Now the question is, how is this all related to Spain and the alleged €14.5 million she owes? Well, fast forward to 2011, shortly after. moving in with Gerard Pique, Shakira started spending a lot of time in Barcelona. And that certainly raised a few eyebrows at the Spanish tax agency. Although Shakira’s lawyers maintained that, the entire structure was fully disclosed to the Spanish authorities through tax filings. and that Shakira has always been in full compliance with the laws of all jurisdictions, there. was certainly increasing scrutiny over the artist’s tax affairs, especially in the wake of the

Panama and Pandora papers leaks. So the Spanish authorities decided to launch. a full fledged investigation. The main question that needed to be answered, was whether Shakira was a tax resident of Spain or was she indeed a tax resident. of the Bahamas. You see, if she was deemed a tax resident, of Spain, her worldwide income would be subject to taxation in Spain. So the money that would have otherwise been. subject to a 0% tax in the Bahamas, would instead be subject to Spanish taxation at. a marginal rate closer to 50%. To make that determination, we usually turn. to the infamous 183 days rule, which broadly states that you are a tax resident in any. given country if you reside in that country for longer than 183 days in any given 12 months. period. So the Spanish tax authorities went to work, scavenging social media posts, public appearances, newspaper articles, among other sources to reconstruct a timeline of her whereabouts in an attempt to prove that she was in Spain. for more than 183 days from 2012 to 2014. By 2021, the inspector successfully mapped. out her timeline, showing that she was in Spain for more than 183 days in all 3 years. So a Spanish court judge concluded that there was sufficient evidence to bring a total 6 charges of tax evasion against Shakira so. she’ll be heading to court soon. This is an ongoing litigation and it’s up. to anyone’s guess on at this point, what the outcome of the trial will be.