Why The “Beckham Law” Repeal Isn’t A Big Deal

Tabloids and newspapers across England and Europe have been jumping all over the Spanish Government’s move to repeal the tax exception law, passed in 2005, dubbed the “Beckham Law”.  The nickname comes from the fact that David Beckham was the first foreign person to take advantage of the law.

The tax law itself deals directly with income tax.  It gives top-tier income earning expatriates in Spain the ability to avoid the standard progressive income tax of up to 43% and instead pay a flat 24% tax on earned income in Spain.  It became popular among professional footballers because it allowed them to remain essentially resident earners in Spain but declare themselves as non-resident contractual earners and in turn pay significantly less in income tax.  In addition the exemption meant that only income earned in Spain would be taxed for these foreign workers while income earned elsewhere in the world, such as boot sponsorships and other forms of commercial sponsorships are not subject to Spanish taxing.  Normal resident taxpayers in Spain have their world net income taxed instead.

This became controversial in a number of ways.  The biggest being that it made La Liga significantly more attractive than the English Premiership.  England has their progressive income tax with top earners potentially being taxed up to 50%.  Top footballers and even mid-tier players would easily fall into the upper-end of the tax progression and therefore find a move abroad technically more lucrative despite having a lower pay simply due to the amount of money lost in taxes.

The intention for the law was an attempt to induce foreign CEO’s to come to Spain and establish regional headquarters and residence in Spain.  From this the Spanish government hoped the influx would lead to increased investment, higher qualified employees and economic interaction.

Consequently many see the repeal of this law as huge in regard to Spanish football, with the biggest talking point being Cristiano Ronaldo.  He’s come under significant criticism by fans during games recently and has seen Real Madrid Legend Alfredo Di Stefano throw no support whatsoever behind him, instead giving his support to fans claiming they have the right to make known their opinion.  Many feel the repeal of this law in conjunction with his treatment by fans may force Cristiano out of Spain and back to his previous employer Manchester United, who admittedly have lacked a flair and creativity since the Portuguese star left in 2009.

This argument line is flawed in two ways though.  The first being that fundamentally, choosing a flat tax in Spain as a non-resident sometimes isn’t the most beneficial move financially.  By choosing the flat tax you opt out of being able to take advantage of any allowances and deductions according to Advoco, a Spanish based financial consulting company.  “A basic rate taxpayer or even one paying the higher rates of 28% and 37% can pay less tax being taxed as a resident because the effect of personal allowances and deductions offsets the higher marginal rates of tax”.  Making the initial choice for exemption not necessarily as advantageous.  Then take into account (no pun intended) clever accounting practices like those employed by top footballers in England and you can very easily avoid paying top tax money on your income.  Many footballers now sign two contracts with their clubs, contracts for their salary, and then contracts for their image rights.  Many times the image rights account for significantly more than their salary income and are paid into shell companies where they can only be taxed up to 28%.   From there, these shell companies would take out loans on this income to then pay the athletes in that form since that  money could only further be taxed at a 2% rate.

Combine that with tax loopholes tied to investment into under funded areas of Great Britain and you find the location of much of the loose cash floating around made by footballers who are looking to avoid paying full on their taxes.

As if that first point wasn’t enough, in 2010, the Beckham law was amended to exclude contractual employees who earned more than €600,000,  per year.  This usually excludes most top-tier footballers who would seek to exploit the law to avoid the upper end of the sliding tax scale.

This amendment has thereby rendered the law virtually useless to footballers  in Spain since 2010.  If the change were to cause an outflow of talent from the Iberian nation, it would have occurred relatively soon after this amendment was put into place, not upon the repeal of the whole law itself.  If anything, even if there was a delayed reaction to this development why would talent leave Spain to go to England where they face similar tax laws?

As nations investigate various avenues in order increase annual revenue to boost bruised economies, tax law remains a large and sometimes primary focus.  It is clear how this law could benefit potential business growth and movement into Spain, however, those who are calling its repeal the end of days for Spanish soccer are clearly misinformed and should take a closer look at the details.

Reporting on the business side of the world's game.