The recent resolution issued by the Regional Economic-Administrative Tribunal (TEAR) of Madrid, dated January 29, 2025 (case number 28/17666/2023/00/00), offers valuable insights into the practical application of Spain’s expatriate tax regime, popularly known as the “Beckham Law.” This decision specifically addresses the controversial issue of simulated interposed companies and their implications under this special taxation regime.
Spain’s special tax regime for expatriates, codified in Article 93 of the Spanish Income Tax Law (Ley del IRPF), allows qualifying foreign nationals moving to Spain to opt for taxation as non-residents for a set period. This regime, colloquially referred to as the Beckham Law, provides an attractive flat tax rate of 24% on employment income earned in Spain up to €600,000, and 47% on amounts exceeding that threshold. The regime has undergone various amendments, most notably through Law 28/2022 (“Startup Law”), which broadened eligibility and reduced the required period of prior non-residence from ten to five years.
The TEAR Madrid ruling revolves around whether the Spanish Tax Authorities, during a tax inspection conducted after an initial limited tax audit, could lawfully introduce new facts based on the discovery of a simulated interposed company. The taxpayer had not previously been questioned regarding the existence or operations of the company during the limited audit. The Tribunal concluded that uncovering a simulated company lacking the necessary resources and infrastructure to justify its income constitutes a newly discovered fact, thus legitimizing further inspection without breaching the principle of preclusion.
Critical Considerations
Several key points from this ruling warrant deeper analysis:
- Principle of Preclusion and Administrative Authority: The ruling significantly expands the inspection powers of Spanish Tax Authorities, affirming that discovering previously unidentified simulated entities allows for reopening or extending tax audits. This sets a noteworthy precedent, highlighting potential increased scrutiny for expatriates benefiting from this regime.
- Interposed Companies and Substance Requirements: While the use of corporate entities to manage income streams is common and often legitimate, Spanish authorities emphasize substantial operational substance. Entities must demonstrate sufficient resources, both human and material, to support their business activities. Failure to meet these criteria can result in reclassification by authorities, leading to severe tax implications.
- Impact on the Beckham Regime Eligibility: The ruling underscores the critical necessity for transparency and substantive operational structures among expatriates utilizing the Beckham regime. Entities deemed artificial or lacking genuine economic activity risk jeopardizing the entire benefit, potentially triggering retrospective tax adjustments and penalties.
Implications and Recommendations from Lullius Partners
At Lullius Partners, our extensive experience in advising high-net-worth individuals, expats and international clients underscores the necessity of meticulous tax planning aligned with the latest regulatory standards. This ruling reinforces the importance of maintaining robust and genuine business structures. We advise clients to consistently evaluate their tax positions, ensuring entities are substantively compliant and sufficiently documented to withstand administrative scrutiny.
In summary, the TEAR Madrid decision serves as a timely reminder for expatriates and their advisors to prioritize clear, compliant tax strategies that safeguard eligibility for the Beckham regime. Lullius Partners remains committed to guiding our clients through complex international tax scenarios with diligence and proactive risk management.
