David Beckham and Spain’s tax shake-down
Spain’s socialist prime minister is waging a vicious campaign against law-abiding people who’ve benefited from the country’s David Beckham tax – and the Spanish economy will suffer as a result, says John O’Connell
There aren’t many people more famous than David Beckham. He’s so famous, in fact, that he even has a tax law named after him. Enacted in 2004, the law meant that those living in Spain under its protection had lower income tax rates and were only taxed on income earned in Spain. The logic is simple; offer a reasonable tax environment to reap the economic rewards of their presence and activity.
Arsene Wenger, then Arsenal manager of Arsenal Football Club, said that: “With the new taxation system, the domination of the Premier League will go, that is for sure”. Correlation isn’t causation, but the success of English clubs in the Champions League in the early noughties did indeed come to an end. At the same time, Spanish clubs, in particular Barcelona and Real Madrid, came to dominate the elite level of European football while consistently bagging the game’s biggest stars.
The law was named after Becks as he was one of the first and most notorious players to take advantage of it when he moved from Manchester United to Real Madrid. It meant non-residents were taxed at a flat rate of 24 per cent instead of the top marginal rate of 43 per cent (at 2008 rates).
A tax regime to lure talent
Madrid’s policymakers, it seemed, grasped the fundamental principle of attracting wealth creators rather than punishing them. This legislation was a clear admission that a welcoming tax regime could indeed lure foreign talent and, crucially, generate tax revenue that might otherwise be lost.
The policy worked too. In addition to David Beckham and other super star footballers, hundreds of thousands of Brits have benefited from the law, bringing their wealth and skills with them. Spain, of course, repeatedly features in the top ten of favourite countries for the British to emigrate to.
Times are changing though. The Spanish government, led by Spanish Socialist Workers’ Party prime minister Pedro Sánchez, has started a campaign against those benefiting from Beckham’s law.
Through the Spanish Tax Authority (STA), a victim may receive notification that they are under investigation. Then they can be told that their status has been revoked, or sometimes that it is illegitimate or fraudulent. Next, they might be informed that they owe vast sums of money to the tax authority.
All the while, they may have to produce all manner of documentation, sometimes stretching back over a decade, or face further fines. Their personal and professional lives can be upended and their integrity questioned.
Worse, there is no opportunity to appeal, unless you first pay the rather large fines. The STA can start legal proceedings against you to freeze your bank accounts, both in Spain and abroad.
Do not forget, these are law-abiding people who have lived under legal status for years, paying their taxes to the STA each year and facing no problems.
STA inspectors are paid a bonus for collecting increasing amounts of income tax. This is a perverse way to treat citizens and a perverse way to view tax. Make no mistake, this is a vicious campaign and, given the manner in which it is being conducted, resembles more of a shake-down than legitimate government policy.
While perhaps less obviously pernicious, the pursuit of the wealthy in Britain is cut from the same cloth with the same likely outcomes – people deciding to move elsewhere. Ultimately, a shrinking tax base just means more taxes for the rest of us. The solution is to get our own house in order – reform taxes to reduce the burden and make them much simpler. We may not have the Spanish weather to offer, but with the right tax framework in place we can make Britain a more attractive place to live and work. It’d be nice to attract some of Spain’s superstars to the Premier League, too.
John O’Connell is chief executive of the Taxpayers’ Alliance