Expats moving to Spain for work and retirement have been traumatised after run-ins with the cash-grabbing tax authorities, a legal expert has claimed in a stark warning to Brits hoping to settle abroad.
Dozens of foreign nationals have come forward to share how they have had their tax burden almost doubled overnight after auditors working on a commission basis began ‘relentlessly’ probing their accounts.
In stories heard by MailOnline, residents said they had been threatened with criminal prosecution even after proving their status, handing over huge sums of money in what one solicitor advocate has said amounts to ‘clear extortion’.
At least one victim was ‘hospitalised by the stress’ after having her tax burden raised from 24 per cent to 45 per cent after more than a year of ‘relentless pressure’ and threats of being taken to court.
Robert Amsterdam, a British Solicitor Advocate helping expats targeted by audits, says the stories are part of a wider pattern of ‘corrupt’ tax collectors going after foreign residents on lower tax rates by hassling them into paying more.
File photo. Foreign expats have had their tax exemptions changed after years living in Spain
Those affected by the audits all have in common contested eligibility for a tax exemption under an initiative known as Beckham’s Law.
Coinciding with David Beckham‘s transfer to Real Madrid in 2003, the 2004 law would allow expatriates to benefit from a significant reduction in income tax.
British Solicitor Advocate Robert Amsterdam, of Amsterdam & Partners LLP
Progressive tax rates in Spain go up to 45 per cent. But those eligible for the scheme could pay just 24 per cent on their Spanish-sourced income, up to €600,000.
But Mr Amsterdam warns that Spain has steadily ‘pared back’ its tax breaks for foreigners.
He told MailOnline that many find themselves having their status ‘withdrawn without explanation’, suddenly contending with huge sums owed in back taxes.
Residents like Anna, not her real name, were initially approved for the scheme and given the official documentation, before suddenly having their eligibility revoked.
The Spanish tax authority ‘got a sniff of the money’ and ‘opened an audit at the last possible moment’, Mr Amsterdam told MailOnline.
The authorities hit Anna with demands for documents and information ‘for which they had no right whatsoever’.
Anna had her documents in order and was able to provide what they asked for, he said.
But then she was told the company that she worked for was a sham.
It is a ‘familiar line from their playlist’, Mr Amsterdam claimed. ‘It was not. She demonstrated that’.
Anna was then told that she never qualified under Beckham’s Law, despite the certificate she had received.
Overnight, her tax burden on Spanish-earned income jumped from 24 per cent to 45 per cent.
When she panicked, she was threatened with criminal proceedings and offered a deal, which she accepted.
Mr Amsterdam judged that the tactic was ‘clearly extortion’.
Anna was ultimately hospitalised ‘by the stress’ of dealing with the authorities.
It was ‘job done as far as the Spanish tax authority was concerned,’ Mr Amsterdam assessed.
The 2004 introduction of ‘Beckham’s Law’ coincided with David Beckham’s 2003 transfer to Real Madrid. It was designed to attract top talent to the country with sizeable tax exemptions
At the heart of the issue, he warns, is the perverse incentive system for tax collectors.
‘There’s a mixture of things,’ he said. ‘There’s firstly a relentless level of corruption… The tax inspectors operate on a bonus system tied to their assessment so they’re in this to win.
‘Their personal financial benefit resides on your misery.’
Those who call their bluff and go to court, or try to appeal a decision against them, can then find themselves trapped in a lengthy and expensive process, in some cases taking more than eight years to resolve.
‘Actually getting to court to vindicate your rights can take eight to ten years, so most people give in to what is effectively extortion because they know it’s going to be a goddamn decade before they get their justice received,’ he said.
Mike, also not his real name, moved to Spain for work in 2018.
His employer relocated him to learn more about the Spanish market for their financial services offer. He already spoke some Spanish and was enthusiastic about the challenge.
The global outlook changed and Mike’s company moved its focus. He was recalled to London full-time and uprooted.
A year later, despite no longer living in Spain, he was contacted by the Spanish tax authorities and told he would be investigated.
Mike was already aware of horror stories around Beckham’s Law, but could never had imagined what followed, MailOnline heard.
He was called into ‘endless’ meetings and pressed for information. When his records offered nothing unusual, they broadened the scope to an international probe, rifling through accounts in every country where he had a bank account, Mr Amsterdam shared.
The investigation is still ongoing a year later.
‘The Spanish tax authority still refuses to say what their inspectors are looking for. They refuse to give more than the blandest of answers to his questions.
‘They refuse to say whether they are suggesting that he didn’t qualify for the Impatriate regime. They have had eight years to decide that.’
Still, ‘there is a long way to go.’
A Spanish Villa on ocean between Maro and Nerja, Andalucia
Lars, not his real name, also arrived in Spain with the expectation of growing a business and investing in the local economy.
He had already built a successful company in Germany and saw opportunity for his skills in the Spanish market.
A good friend offered Lars a directorial role at his firm in Spain and, seeing the potential for movement, he took the leap.
It was the company’s lawyer that first told Lars about Beckham’s Law, and suggested might be eligible.
Lars applied and received the certificate confirming his status. He now stood to benefit from a favourable tax regime as the company tried to grow against the current of the pandemic.
Two years on, he received an offer for his company in Germany. Committed to Spain, he sold the company in July 2020.
Lars declared all his income, filed his returns and paid the tax he was ostensibly due to pay in Spain.
But the authorities ‘saw an opportunity’ in the sale of his Germany company, Mr Amsterdam said.
‘They upended his life, tore open his personal affairs with a deluge of questions.
‘He gave them everything they asked for. He had nothing to hide. They said that his company was a sham. It wasn’t. But it didn’t seem to matter.’
Lars was threatened with prosecution and told to pay additional tax, as well as penalties and interest.
‘There is no end in sight,’ Mr Amsterdam admitted. ‘The nightmare continues.’
‘Traumatised’, Lars has now left Spain with his family to build a new business elsewhere.
But he remains pressed by tax auditors in Spain to pay up or face a criminal trial for a crime unclear.
File photo. People moving to Spain to work or retire report being hit with shock changes to their tax burden after being aggressively probed by the authorities
What was originally intended as a means of courting talent from abroad is now having the opposite effect, lawyers warn.
Tax probes and backpedalling on agreed regimes has fostered a sense of insecurity, deterring entrepreneurs and wealthy retirees from settling and investing in Spain.
While measures have been taken to clarify who is and is not eligible for the scheme, foreign residents who took advantage of the scheme in years gone by are now feeling increasingly persecuted by the authorities.
Bureaucratic tangles may pose a threat to Spain’s ability to attract and retain the skilled and wealthy in the long term. But, more immediately, the system as it stands threatens to leave residents in financial ruin and desperately unwell today.
