Spanish income tax provisions

potentially contrary to treaty

freedoms

International and European Tax Law

By Irene Nogueira Otero

Spain, like many other countries, has a system of income tax that is intended to collect revenue
for the government to fund public services and infrastructure. However, there are certain
provisions in the Spanish income tax system that may be considered contrary to treaty freedoms
and may be challenged by individuals or businesses.
To begin with, explaining about the contrary to treaty freedoms, we must focus on the freedoms
of the European treat.
One of the fundamental pillars and objectives of Community law is to achieve the application
and generalization of four principal freedoms: the free movement of capital, goods, people, and
the provision of services.
The free movement of capital is necessary for these to be effective and implies the liberalization
of administrative and legal practices in the field of exchange controls.
The free movement of goods implies customs and tariff unification and the elimination of
restrictions on trade between Member States.
The free movement of people takes the form of two other freedoms: the freedom of
establishment, which recognizes the right of self-employed persons and legal persons to
exercise their professional activity in any Member State, and the free movement of workers,
which recognizes the same right for salaried workers.
The freedom to provide services, which complements the freedom of movement of persons,
especially in the form of freedom of establishment, since while the latter provides for a stable
and permanent activity, in the case of the freedom to provide services the right to exercise a
professional or commercial activity on a non-permanent basis is protected.
In relationship with the free movement of people, we may come across a law that is potentially
contrary to this freedom. It is known as the “Beckham law”, but it actually belongs to the
income tax law, specifically article 93., which is called “Special tax regime applicable to
workers, professionals, entrepreneurs and investors posted to Spanish territory”.
The Beckham Law is so called because it was adopted when the popular English footballer
arrived at Real Madrid. It is a special tax regime for the income of foreign workers resident in
Spain and Spanish workers repatriated from abroad. It was created in order to obtain part of
his earnings contracts in Spain, a subsidized tax regime was devised that would make him pay
less tax for a certain period of time. Today the “Beckham law” has undergone a series of
changes and is no longer a tool that professional sportsmen and women can apply for. It is a
tax instrument that increases the possibilities of attracting in Spain the holders of employment
contracts or employment income up to 600,000 €. It is therefore an ideal tax regime for highly
qualified workers employed by companies and firms in Spain. t is a tax regime that allows
those who can adopt it to pay less tax at a flat tax rate of 24%. The 24% rate is usually the rate
applied to non-residents or to those who produce income in Spain for up to 183 days a year. A
person who resides in Spain for more than 183 days is considered a tax resident and is subject
to a tax rate of up to 47% on income produced in Spain and outside Spain. Foreign salaried
workers arriving in Spain who are not yet residents, and Spanish workers repatriated from
abroad after 10 years, may apply for the Beckham regime. The subsidized tax regime can be
applied for 6 consecutive years.
The Beckham Law has caused some issues with the Double Taxation Agreement (DTA)
between Spain and the United Kingdom, as the DTA has provisions that prevent individuals
from receiving preferential tax treatment. The UK government has raised concerns that the
Beckham Law could be seen as a form of tax avoidance, as it allows foreign citizens to pay a
reduced rate of tax on their Spanish income, while the UK citizens have to pay a full rate of tax
on their worldwide income. Additionally, the UK government has also argued that the
Beckham Law could result in UK citizens potentially being double taxed, as they would be
required to pay tax on their Spanish income in both Spain and the UK.
However, it's worth noting that the Beckham Law was repealed in 2010, and therefore the DTA
between Spain and the UK does not have any issues with the Beckham Law anymore.
The fact that non-residents are subject to a higher withholding tax rate on certain types of
income could be considered discriminatory as it may discourage EU citizens from moving to
Spain, thus restricting the freedom of movement of people, which is a principle protected by
the EU Treaty.
Under Spanish law, non-residents are subject to a withholding tax rate of 24% on rental income,
while residents are subject to a rate of 19%. This difference in tax treatment may discourage
EU citizens from moving to Spain and renting out their property, as they would be subject to a
higher tax rate than Spanish residents.
This differential treatment is in violation of the principle of non-discrimination, which is a
fundamental principle of EU law. Article 18 of the Treaty on the Functioning of the European
Union (TFEU) states that "within the scope of application of the Treaties, and without prejudice
to any special provisions contained therein, any discrimination on grounds of nationality shall
be prohibited."
Furthermore, the Court of Justice of the European Union (CJEU) has established that the
freedom of movement of people, as guaranteed by the EU Treaty, includes the right to choose
one's place of residence within the EU. The different tax treatment for non-residents may
discourage EU citizens from exercising this right, thus restricting their freedom of movement.
The problem of discriminatory tax treatment for non-residents can be reported to the European
Commission for further investigation. If the European Commission finds that the Spanish tax
laws are in violation of EU treaty freedoms, it may take action to ensure that the Spanish
government brings its tax laws and regulations into compliance with EU law.
It could also be argued that the problem is not only related to the free movement of people but
also with the free movement of capital, as the differential treatment of non-residents may
discourage EU citizens from investing in Spanish property, thus restricting the free movement
of capital.
Moreover, it's important to mention that the problem is not only limited to Spain, but it's a
common issue among EU member states, as each member state has its own tax laws and
regulations, which can create confusion and uncertainty for EU citizens moving between
member states.
In conclusion, the different tax treatment for non-resident taxpayers in Spain is a specific
problem potentially contrary to treaty freedoms related to the free movement of people and
capital. The EU Treaty guarantees non-discrimination and the freedom of movement of persons
and capital. The differential treatment for non-residents in Spain may discourage EU citizens
from moving to Spain and investing in Spanish property, thereby restricting the free movement
of people and capital. This problem can be reported to the European Commission for further
investigation.
I think that for many years, from 2005 until 2016 when it was changed, Spain has been taking
advantage of the situation, not only of the football legend but of many other people. It used this
law to collect more money than it was actually corresponded to, as this would damage the
double taxation agreement with the UK, which I think was not a very good idea as it could
have had serious consequences for Spanish people working in the UK or English people living
in Spain.
It is also worth mentioning the inequality between the income tax, between residents and non-
residents there is a difference of 5%, which for many people is a great effort. In my opinion,
this is a serious act of discrimination, as you should not have to pay more for living elsewhere
in the European Union if you are taxed in Spain (in the case of the UK it is taken into account
before Brexit), this limits the movement of people and capital, so it would go against these two
freedoms.
Webgraphy:

- Pros and Cons of the. (2021, 15 october). Beckham

Law. https://lexbeckham.com/beckham-law/pros-and-cons/

- Libertades de los Estados miembro de la Unión Europea. (2021, 8 february). Fundación

MAPFRE. https://www.fundacionmapfre.org/publicaciones/diccionario-mapfre-

seguros/libertades-de-los-estados-miembro-de-la-union-europea/

- Pardo, M. (2023, 6 january). Ley Beckham en España. Régimen fiscal especial hasta

600.000€. Damiani & Damiani. https://damianianddamiani.com/es/ley-beckham-en-

espana-regimen-fiscal-especial-600mila/

https://www.boe.es/buscar/act.php?id=BOE-A-2006-20764&tn=1&p=20221228

- BOE.es - BOE-A-2006-20764 Law 35/2006, de 28 de november, del Impuesto sobre la

Renta de las Personas Físicas y de modificación parcial de las leyes de los Impuestos

sobre Sociedades, sobre la Renta de no Residentes y sobre el

Patrimonio. (s. f.). https://www.boe.es/buscar/act.php?id=BOE-A-2006-20764

- Queen’s Printer of Acts of Parliament. (s. f.). Consolidated version of the Treaty on the

Functioning of the European Union. https://www.legislation.gov.uk/eut/teec/article/18