The 30-year-old will not spend time in prison, however, with Spanish law stating that a sentence of under two years for a first offence can be served on probation.
The Brazilian becomes the latest figure in Spanish football to suffer sanctions for defrauding the tax authority. Lionel Messi exchanged his 21-month prison sentence for a €250,000 fine, while Cristiano Ronaldo had to agree to a two-year suspended sentence and a €19 million (£16.9m/$22.15m) fine. Jose Mourinho, Luka Modric, Javier Mascherano and Angel Di Maria have also cut deals with prosecutors.
Marcelo will appear in court on Tuesday to plead guilty to charges of tax evasion in order to avoid jail time and reduce the fine. The Brazil international was accused of evading the payment of €1m after the transfer of his image rights to a Uruguayan company called Birsen Trade SA that he used to evade the tax payment to the Spanish treasury.
The former Fluminense player admitted to handing his affairs to a company that "lacks the human and material resources to carry out its functions", and the authorities ruled that he had evaded taxes worth approximately €500,000.
The tax agency also accuses Marcelo of evading the payment of €100,476 and €101,615 in the years of 2011 and 2012 but this will only entail a sanction by administrative way of about €150,000.
Taking the full fines and interest into account, Marcelo will have to pay almost €1m to free himself from legal trouble.
A four-time Champions League winner with the Santiago Bernabeu outfit, Marcelo joined Madrid in 2007 and has since made over 450 appearances for the club.