AC Milan could come up empty during the January transfer window … or not. A day after expressing hope that Kaka could be on his way back to the San Siro, Adriano Galliani told reporters that talks between Real Madrid and AC Milan have broken down “for tax reasons.” Meanwhile, Manchester City has sanctioned the sale of troublesome striker Mario Balotelli before the end of the month, but Milan and City are still some distance from agreeing on what his sale price should be.

According to La Marca, Galliani is playing cat and mouse with Real Madrid over the signing of Kaka. While the Milan vice president seemed to be saying that the deal had failed, La Gazzetta dello Sport says Milan has reached an agreement with the Brazilian that would see his salary cut from $13.3 million to $8 million, and now the move is waiting for Real Madrid’s final approval. Goal.com says the hold-up is Real’s demand for a $9 million fee to cover its tax payments. Talks remain ongoing.

The Daily Telegraph is reporting that the Balotelli deal is also still alive. Milan believes City’s initial valuation of $48 million is excessive, but the paper’s sources say the Serie A giant would be willing to pay closer to $35 million to secure his signature. The big sticking point could be Milan’s wish to pay the fee over as many as six installments instead of upfront.