Leading Spanish news website El Confidential said Spanish prosecutors have accused the Real Madrid midfielder Modric, 32, of tax fraud of up to €870,728 (£770,123, $1.03m) in image rights between 2012 and 2014.
Additionally, the authorities say they have been informed that Modric may have “financial positions” in the Isle of Man that are not known by tax authorities that may have affected the amount of taxes he was liable to pay in Spain.
The accusations mean Modric is the latest footballing star to be caught up in a recent crack down on tax fraud by the Spanish authorities.
Modric’s Real Madrid teammates Cristiano Ronaldo, Marcelo and his former coach Jose Mourinho are among the other high profile players currently being investigated.
Additionally, in 2016 Barcelona’s Lionel Messi was found guilty of €4.1m fiscal fraud and was given a suspended sentence of 21 months which was later exchanged for a fine.
According to El Confidential, the investigation also includes Modric’s wife Vadja, who is being accused of tax irregularities, and a limited company based in Luxembourg called Ivano Sarl.
Modric joined Real Madrid from Tottenham Hotspur in 2012 for €40m and has won a La Liga title, and three Champions Leagues.