Beckham Law and Tax Collection

CECA MAGÁN Abogados, expertos en fiscalidad internacional, Ley Beckham y estimación de recaudación tributaria
11 Oct 2023

Table of contents

The Spanish Tax Agency has estimated the loss of revenue for 2023 as a result of the application of the Beckham regime. This questionable estimate is making headlines as the Portuguese government announced the elimination of its non-habitual resident tax regime, reigniting the debate on the Spanish impatriate regime or "Beckham Law". This regime, which was introduced with the aim of attracting talent that would generate value in the Spanish economy, is an undoubted attraction for the relocation of workers to our country

Although the parameters used to estimate the loss of revenue represented by the Beckham regime have not been disclosed, experience tells us that, in general, the revenue estimates of the Spanish Tax Agency have little or nothing to do with the reality that tax professionals identify and estimate. For example, the fiasco of the estimated revenue from the wealth tax on large fortunes. Therefore, we believe that this estimate of revenue loss is also flawed and aimed at sowing doubts about the benefits of this regime.

Hay mucho más detrás de la “Ley Beckham” queThere is much more behind the "Beckham law" than its income tax collection. Assessment of its benefits should contemplate economic and social factors that the Tax Agency's estimate does not discount in its calculation.

1. Do non-taxpayers compute?

The definition of the terms of comparison to assess the benefits of any legislative measure is fundamental. In this case, it is clear from the Tax Agency's own estimate that the terms of comparison used are not realistic, as they assume that all taxpayers covered by the Beckham Law are obliged or have been forced somehow to reside in Spain.

However, there are many who voluntarily move to our country, and not only digital nomads, as we saw during the very long legislative process of the Start-up Law. Many delayed their decision to move until the final approval of the law, seeking to benefit from the flexibility introduced in the Beckham regime in terms of reduced number of years of previous residence and extension of possible beneficiaries. It is illusory to think that those who relocate do not value the tax consequences of the change.

EIn this scenario, the benefits of the Beckham Law make the difference in favor of moving to Spain.

From this perspective, the tax benefit to Spanish tax collection from Beckham taxpayers would be 100%, as it is clear that non-taxpayers are not taxable.

2. The cons of the Beckham Law

It would be interesting to know how the Tax Agency’s estimate of loss in tax renevues appraises the effect of the limitations of the Beckham Law on access to the most common tax benefits for workers. Thus, taxpayers under this regime cannot apply the exemption for work physically carried out abroad (article 7.p Income Tax Law), nor the exemption for mandatory severance payments; nor the 30% reductions for “irregular accrual” on non-mandatory severance payments and on multi-year bonuses, RSU or stock-options. Sometimes, these limitations make Beckham taxpayers pay taxes where the regular Spanish taxpayer does not.

It is unlikely that the Tax Agency has discounted these cases in its estimate, let alone the taxation of ownership of a primary residence as second homes deriving imputed income.

Beckham Law: objective achieved

Undoubtedly, the Beckham regime is attractive and, in general, more beneficial than the general personal income tax regime from an income of around €50,000. Although in a country like ours where, according to data from 2022, 80% of taxpayers earn less than €60,000 one could conclude that it is a regime for the "rich", objectively, it is not.

The Beckham regime is designed to attract workers: employees, managers of Spanish companies, entrepreneurs and professionals related to emerging companies, and their families. These are, therefore, individuals who come to Spain to contribute to the GDP, to contribute to the Social Security, to pay indirect taxes when they consume or invest in our country (taxes that are neither contemplated in the Tax Agency’s estimate) and to invigorate the economy, which is, in short, the objective of the Beckham Law.

Let's not fall into the trap of demonizing those who earn five-digit amounts, because for every one of them who moves to our country under the Beckham Law, it will take more than four regular income taxpayers with salaries at the national average to reach Beckham Law taxpayers’ taxation under the special regime.

Nor should we accept the easy criticism that the Beckham Law only seeks to attract foreign talent, since experience has shown that this regime allowed Spain to recover national talent; Spaniards who had been trained abroad or were forced to emigrate for various reasons and who see in the Beckham Law the possibility of returning to Spain with no loss of purchasing power.

Questioning the benefits of the Beckham regime is evidence of a short-sighted vision of the power of the tax system to influence the behavior of taxpayers, in which individual income tax collection is seen as an end in itself, and not as a means to implement all kinds of policies, in this case, to generate wealth and economic dynamism, while raising revenue through indirect taxes.

If you have any doubts, our lawyers, experts in international taxation and tax law, can help you. Contact them here.

Almudena Medina

Partner of Tax department

Tax

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