VaKarM.net

Menu Compte

kennyS dans le viseur de la justice

Page 2: kennyS targeted by the French tax administration

It all started with an anonymous source who contacted us and sent us a link to a ruling of the Court of Appeal of Aix-en-Provence, dated November 19th, 2020. If the prospect of reading a court decision didn't necessarily arouse us, curiosity pushed us to click on the link to discover in detail the parties to this case: the National Direction of Fiscal Investigations, the General Direction of Public Finances, and a certain "Société KENNY SCHRUB & CO LIMITED". So we put on our best Edwy Plenel moustaches, and off we went to try to understand this story.

Let's remind ourselves that the objective of this article is not to declare that anyone is guilty of one or more violations of the law. It only seeks to explain and make accessible to the general public the course and the elements of a legal procedure in progress concerning one of the most popular players of the French scene. We also contacted Cyril Michel and Kenny Schrub. We had a telephone conversation with the former for about 20 minutes. The information he gave us will be noted as such when used in the article. Everyone will be free to form their own opinion based on the facts that are presented throughout this text.

Chronology of the legal proceedings

Our case begins in 2019 with an order issued by the Liberty and Detention Judge (JLD) of the Tribunal de Grande Instance (TGI) of Dignes-Les-Bains on October 3rd, and then by an order issued by the JLD of the TGI of Aix-en-Provence on October 9th. These orders allow the agents of the public finance administration to carry out home visits and seizures at two addresses, one in Digne-Les-Bains and the other in Gardanne, two cities in Southern France, against Kenny Schrub, his half-brother Cyril Michel and their companies.

The denomination "visits and seizures" may seem harmless but these are real searches: the tax agents, accompanied by a judicial police officer, come and search the places targeted by the order in order to find evidence of tax fraud.

In our case, kennyS and his half-brother thus saw these people arrive, one fine morning in November 2019, at the door of their home so that they could search their house, their computers and even their cars. One of the addresses is the headquarters of Centurio, an influencers agency whose Michel is an associate and the other is, according to Michel, the home adress of the brothers' mother.

This story could have never reached our ears but the G2 Esports player and his half-brother appealed this order to cancel the operations and prevent the tax authorities from using the information collected during the searches. Faced with this appeal, the judges explained that these operations were possible because of the presumption of fraud.

Parties named in the proceedings

Income, Wages and the Court's Questions

First of all, it should be noted that this decision does not deal with the merits of the tax case. The decision rendered by the Court of Appeal of Aix en Provence does not rule on the guilt of the parties involved. What is being judged here is the legality of the searches that were conducted by the judiciary. For these searches to be justified, there must be what's called a "presumptions of fraud", i.e. suspicions that Schrub and Michel have not paid income tax, profit tax or VAT. It is in this perspective "presumptions of fraud" perspective that the Court of Appeal will make an inventory of the tax declarations and financial arrangements of the targeted persons, and lift the veil on the practices of the two brothers.

As far as Schrub is concerned, he declared income in France in 2016 and 2017, up to 48,000 euros per year. This income falls into the category of salaries and wages from foreign sources, and was paid by the company KS&CL domiciled in Ireland. They are declared on a consulting activity and were taxed by a withholding tax in Ireland.

First problem for the Court of Appeal: these are not the amounts that were declared to the Irish tax authorities. Over the year 2017, only €18,750 were declared in Ireland. Second problem, the amount of these annual sums seems derisory when you know the salaries of professional players of CS:GO back in those days in teams like EnVyUs and G2 Esports, especially for a player like kennyS, probably the most famous and "marketable" French player on the scene.


When he signed for G2 Esports in 2017, kennyS' salary was rumored to be around 25 000 euros per month

We can even do more than guess, since KS&CL has invoiced services to the company GAMERS 2 MEDIA SL for an amount of €244 252 in 2017 and €275 040 in 2018. The court considers that Schrub is indirectly remunerated by the services invoiced to GAMERS 2 MEDIA SL by KS&CL.

Furthermore, Schrub did not declare any non-salary income over the years 2017 and 2018. In particular, this category includes tournament cashprizes, which often amount to tens of thousands of euros. According to esportearnings.com, Schrub earned a cool $332,166.67 over those two years while playing for G2 Esports. At the current conversion rate, that would be a little more than 290,000 euros.

It should be noted that the court has no knowledge of the distribution of the cash prizes in Kenny Schrub's contracts with G2 Esports. There is no indication of how much of this amount the player received. It is also quite possible that the cashprizes for these years were paid in other fiscal periods, as late payments are not uncommon in the industry. In the same way, one can ask the question about the incomes linked to the stickers, reputed to be financially substantial for the players who participate in the Majors.

The court states that Schrub "does not declare income in France in the categories of industrial and commercial profits and non-commercial profits since 2016. He is unknown to the tax authorities for a commercial or non-commercial activity". There is a huge question mark over this money, which probably represents several hundred thousand euros. The only thing that seems certain for the court, is that it was not declared in France.

kennyS' cashprizes in 2017 and 2018 according to esportearnings,
representing $332 166.67 or €290 000


Finally, the ruling also states that Michel, Schrub's half-brother, has not declared any income in the categories of industrial and commercial profits and non-commercial profits in France since 2011. However, he declared salaries in 2011, 2013, 2015 and 2016. Like Schrub, Michel is "unknown to the tax authorities for any commercial or non-commercial activity".

Ireland: Rugby, the lakes of Connemara and tax optimization

We then arrive at the heart of the demonstration of the Court of Appeal, the domiciliation of the company Kenny Schrub & Co Limited in Ireland. This information is consistent with the location of Schrub's official YouTube channel and the information shared publicly by Michel on his LinkedIn account.

As mentioned above, the same address was home to 135 other companies as well as a company specialized in tax optimization. If you have followed the recent revelations on tax optimization in tax havens (such as the Panama Papers, the Lux Leaks or the Pandora Papers), you have heard about the practice of having only one mailbox in the tax haven in question, with no other physical presence. We then find ourselves with hundreds, even thousands of companies sharing the same address, in countries where corporate tax rates are the lowest.

Ireland is one of these countries, with a corporate tax rate of 12.5% (recently increased to 15% under international pressure) compared to about 28% in France. Of course, there is nothing illegal about owning a company in Ireland. On the other hand, having a company in Ireland that solely exists to pay taxes there while your activity is in France is prohibited.

 
kennyS' official YouTube channel, domiciled in Ireland as seen at the bottom of this screenshot

This explains the defense of Schrub and Michel, who claimed to have premises there. For the Court, this point has not been demonstrated since there is no evidence of the possession of the apartment put forward by Schrub and Michel in the appeal they made. Similarly, the Court stated that the nature of the activity in Ireland and the reasons for the choice of that country were insufficiently substantiated.

To reach this conclusion, the court relied on very factual elements. The KS&CL company has two telephone lines located in Digne-les-Bains. It is a very beautiful city but, for the justice, it presents the disadvantage of not being in Ireland. Based on these elements, the Court of Appeal presumes that the decision-making center of KS&CL is in France and that it does not have the means to carry out its activity in Ireland. On the other hand, it has these means via Centurio, the event agency of which Michel is a partner.

Other elements are noted, such as a YouTube channel "Kennys Best Plays" that links to rather obscure Russian skins sites. A strange point that seems probably based on a lack of knowledge from the judiciary about the functioning of these hundreds of YouTube channels and the ecosystem of betting on CS:GO, as it is unlikely that a link exists between Schrub and these channels. More interestingly, the judges also mention the website flicks.gg, which sold merchandise featuring Schrub and which was also owned by KS&CL. A new source of income through Ireland for the siblings.

How does the financial arrangement work?


Normally, we're getting to the point where we might be losing you. This is the right time for a little explanatory diagram that shows the financial set-up of Schrub and Michel according to the Court of Appeal.


Enjoy this incredible explicative diagram made by us.

Let's be clear: as we understand it, this setup is extremely simple. It is a far cry from the great financial sagas with shell companies and fake CEOs in the Barbados. Michel seemed even perfectly comfortable to use Ireland for his activities, as his LinkedIn account shows us. KS&CL is mentioned there as existing in Ireland since 2015.


Screenshot from Cyril Michel's LinkedIn page

Once again, the problem is not in opening a company in Ireland but in the fact that the activities of this company do not take place in Ireland.

Too long, didn't read ?

Have you read everything? Well done, let's recap so that all is clear. You didn't read everything? That's okay, this last part is for you.

First of all, the court declares the appeal of Schrub, Michel and the company KS&CL unfounded. As a reminder, they challenged the legality of the home visits and seizures to which they had been subjected in the context of an investigation by the tax authorities. The court reaffirmed the validity of these operations.

But more than this procedural point, it is the arguments of the court that interest us here. These allow us to uncover a potential tax optimization scheme that could, at the end of the case, be qualified as tax evasion. We discover how justice suspects Schrub, a French CS:GO legend, and his half-brother and agent, Michel, of having maneuvered to reduce their tax contributions in the country where they live, France.


Cyril Michel featured in kennyS' portrait made by Valve 6 years ago

A set-up that seems rather simplistic : a mailbox in a country with a lower corporate tax rate, which invoices services to Schrub's team. The latter is then paid a fraction of the amount by the KS&CL company. This income is taxed at source in Ireland, before being declared as such in France, leading the tax authorities to believe that kennyS, international star of CS:GO, earned €48,000 per year in 2016 and 2017 while the company Kenny Schrub & Co Limited invoiced more than €240,000 per year in services to G2 in 2017 and 2018.

To the defense : Cyril Michel

In preparation for this article, we contacted Kenny Schrub and Cyril Michel for clarification. The latter wished to speak with us by phone to present his point of view on this case.

For Michel, the arguments of the justice are the proof of its ignorance and its maladjustment to the esport industry. According to him, this is particularly visible in the documents retained by the search and seizures, of which several elements would not be right. He told us that over the period from 2017 to 2019, Kenny Schrub was not resident in France. He said he could prove that the sniper's professional and marital activities were not then taking place in France.

In doing so, he would not have had to pay his taxes in France, but in his countries of residence at that time, which include Scotland and Malta. The existence of an address in Digne-les-Bains in the name of Schrub exists mainly for practical reasons. Moreover, Michel points out that in 2019 and 2020, Schrub returned to live in France and paid his taxes there in due form. He also told us that Schrub had paid taxes in France while living in Malta.

On Kenny Schrub & Co Limited, the decision to establish it in Ireland would have been made for practical reasons. A family member of both brothers lived in Ireland, and the choice of an Anglo-Saxon country was a natural one, since Schrub lived in Scotland at that time. The goal, according to Michel, was also to avoid having the head office follow the peregrinations of Kenny Schrub, who had changed his place of residence several times in recent years. Furthermore, he points out that European law allows him to domicile the registered office of his company wherever he wishes.

Another point that Michel insists on is the decision-making roles within the different companies mentioned in the judgment and the article. In general, Michel repeated several times that, although he was Schrub's agent, he did not manage his career. Schrub would make his own choices and lead his career as he sees fit. It would be the same with the company domiciled in Ireland: the decisions that are made would be made by Kenny Schrub. According to him, it is Schrub who is the "director, signatory and decision-maker" of Kenny Schrub & Co Limited. Michel would only intervene as a consultant.

Regarding the Centurio agency, which the court links to the activities of KS&CL, Michel argues that he is only a shareholder in the agency and has no decision-making power. These would be regular investments in France, legal and declared.

Finally, when asked about the company "kennyS SLU" domiciled in Andorra, Michel told us that it had been created three years ago. It would have remained on stand-by because Schrub did not want to move to Andorra at that time. Since then, the French sniper has relocated to the Pyrenean principality, where Michel is also a resident. When we discussed the division of responsibilities within the company, Michel was clear that it was Schrub who ran the company. His public status as "general manager" would mean that Michel would manage the employees, but he would not be in charge of the general policy of the company. He told us that he has e-mails that clearly establish this hierarchy of positions between him and his half-brother.

As it stands, Michel explained to us that he had sent all the elements proving his innocence and that of his half-brother to the courts. They are now waiting for a judgment on the merits.

Presumption of innocence, law and morality

Because VaKarM would not be VaKarM without an editorial commentary, let us conclude with some more general thoughts. They do not represent the state of the law, either in this case or in jurisprudence in general. These comments are, of course, our own. They are simply a few hints on a phenomenon that goes far beyond Schrub and Michel.

Let's remind ourselves one last time: Schrub and Michel are presumed innocent. Even if their appeal was rejected by the Court of Appeal, this does not mean that they are considered guilty of tax fraud. We simply know that the administration had suspicions and was able to conduct searches in October 2019. We also know that these suspicions are based on a cluster of evidence already collected, indicating the existence of a financial arrangement around the company KS&CL, domiciled in Ireland. That's for the law.

But even if the administration would not conclude, at the end of the procedure, that there was any breach of the law, another question arises: to what extent is "it's legal" a satisfactory justification for a given behavior? Can one make a moral judgment about an action that the law considers acceptable? What to do in the temporal interstice where the law "lags" behind morality, and does not sanction behavior that is nevertheless reprehensible from a collective point of view? As any law student will tell you, the question of law and morality is as old as legal practice itself.

In the case of kennyS and his brother, the courts seem certain that a company was founded in Ireland with no real local activity. It also seems certain that the player underreported his income in France using this arrangement to pay less tax. As a reminder, Michel argues that Schrub wasn't even domiciled in France on that period.

Even if Kenny Schrub and Cyril Michel have not done anything illegal in the eyes of law, many elements of the case are reminiscent of tax optimization mechanisms. That is, the use of legal loopholes and special regulatory regimes that reduce the amount of tax paid while remaining within the law. This is obviously a very broad concept, which can range from a simple tax deduction on the hiring of a maid, to ingenious schemes that allow billionaires to siphon off the tax revenues of a country.

As it stands, the KennyS case is somewhere on this spectrum: still within the law pending a decision, but already in the grey area of morality. A point reinforced by the latest development in this case: the domiciliation, by Cyril Michel, of a company called "kennyS SLU" in the principality of Andorra, another country known for its favorable tax rates. By residing in Andorra, Schrub will match the place of his activities with the place of declaration of his income.

Andorra, an attractive tax haven for esport and sport athletes

This practice also has a name: we no longer speak of tax optimization or tax evasion, but of tax exile. It is very popular with many tennis players and Formula 1 drivers who live in Switzerland or Monaco. The example of tennis was the first one cited by Michel to explain the specific nature of the activity of professional players. Our favorite sniper will find there other actors in the ecosystem who make no secret of their exile. With kennyS, we would almost have enough players to make an Andorran line-up who could compete for the top10 in the world.


We will therefore be careful not to make any legal judgement, but it would seem that the companies set up by Schrub and Michel have, like many other professional players, a particular appetite for countries where tax rates are particularly low. Everyone is free to apply his own values to make his own opinion, but what we know for the moment leaves us wondering.

 

 

Update 16/11 (15:13):

- We have corrected an error that had amalgamated the managers of the Centurio agency. Apart from the name of Cyril Michel and the company KS&CL, partner of the agency, the judgment does not make any link with other partners or managers of the company Centurio.

- The Centurio agency is an event agency and not an influencer agency as first indicated.

- Cyril Michel is not directly associated with the Centurio agency. It is the company KS&CL. The diagram has been modified accordingly.

Page 2: kennyS targeted by the French tax administration
Page précédente Liste des news

VaKarM.net

Menu

VaKarM.net vous met à disposition une version mobile HTML5 du site. Cette version marche pour tous les navigateurs mobile/tablet, mais reste adaptée pour les smartphones!

Pour faire de VaKarM une application sur votre iPhone/iTouch/iPad, cliquez sur le bouton du milieu puis sur le bouton "Ajouter à l'écran d'acceuil". Une icone VaKarM apparaitra alors dans votre menu.

Pour votre feedback, veuillez le faire sur le forum

V4.0 - Développé par deStrO