Ben Pawlowski
A FORMER head of the Spanish tax agency has blasted the organisation’s conduct in a vote of confidence for hundreds of expats who have accused the authority of systematically targeting wealthy foreigners.
Ignacio Ruiz-Jarabo, who ran the State Agency for Tax Administration (AEAT) from 1998 to 2001, issued a scathing attack on Spain’s revenue system, labelling it ‘abusive, broken, and dangerously authoritarian’.
Writing in the Spanish newspaper Vozpópuli, Mr Ruiz-Jarabo called on Spain’s Ministry of Finance to address the ‘perverse effects’ of tax collection, which he said amounted to ‘robbery’ against British expats and wealthy Spaniards.
“We’ve reached a point where the tax agency no longer sees Spaniards as citizens,” the former boss wrote. “It sees them as prey. The AEAT has become a modern-day feudal power – and the Ministry [of Finance] is letting it happen.
“What we’re seeing is not just abuse of power – it’s a collapse of accountability. If the Ministry doesn’t act now, it’s complicit.”
Mr Ruiz-Jarabo’s comments appear to support the findings of a damning white paper published in Madrid in May.
Hacienda vs. the People: an initial report on Spain and the Beckham Law was released by Amsterdam & Partners, a top international law firm who have spearheaded a stinging campaign against the revenue service entitled ‘Spanish Tax Pickpockets’.
The hundred-plus-page report accuses the Spanish tax authority – known informally as the Hacienda – of ‘systemic, grievous and ongoing violations of the rule of law’ in relation to application of the so-called Beckham Law.
Named after footballer David Beckham following his high-profile move to Real Madrid in 2003, the tax break helped to encourage tens of thousands of successful foreigners to relocate to Spain.
Under the legislation, introduced in 2005 by the socialist government of José Luis Rodríguez Zapatero, qualifying foreign workers pay a flat 24.75% tax rate on Spanish income up to €600,000 – significantly lower than the progressive rates of up to 47% paid by Spanish nationals.
However, drawing on the testimonies of over one hundred expats, the report claims that many wealthy foreigners have had their tax status unexpectedly reassessed after years of living in the country.
According to the investigation, victims are subject to ‘unfair audits, investigations, and onerous financial claims made […] without foundation’.
The unforeseen demands are typically accompanied by substantial penalties with victims pressured to pay immediately or accept settlements.
Mr Ruiz-Jarabo, speaking to The Daily Telegraph, criticised the system of random tax inspections against high earners which often lead to draconian fines as much as three times the size of alleged unpaid taxes.
“There isn’t a special focus on foreigners, [but] there is more of a focus on high earners and business people because they are bound to have more assets,” the supporter of the conservative Partido Popular (PP) said.
“Many of the people who have been certified have a few years later received a tax inspection denying their position as expatriates. This situation produces legal insecurity.”
Mr Ruiz-Jarabo also blasted a bonus structure that rewards tax inspectors who collect the most revenue.
Slammed by critics as ‘perverse’, a €125 million incentive scheme was unveiled in April which hands auditors bonuses for collecting more income tax and VAT, which some claim gives staff a financial incentive to invent cases and engage in ‘organised, malicious, and hostile actions’ against wealthy residents.
According to the white paper released in May, over €2.1 billion has been handed out to staff in bonuses over the past decade.
Speaking exclusively to the Olive Press, Robert Amsterdam, founding partner of Amsterdam & Partners and co-author of the white paper, said: “They have to reinstate the presumption of innocence, they have to retrain their auditors, and they need to get rid of administrative tribunals that aren’t functioning as courts, but are delaying people’s ability to appeal by years.”
“The inventive scheme has to be modified or ended immediately,” added Mr Amsterdam. “The white paper expresses what the Spanish people have long suffered: repression at the hands of a government agency operating outside legal limits.”
The white paper calls for a sweeping range of reforms to prevent behaviour that is allegedly ‘completely inconsistent’ with European Union and international law, including a new, fully independent review of the practices of the Hacienda.
Mr Ruiz-Jarabo is not the only high profile Spanish figure to have rebuked the conduct of the Spanish tax agency.
José Antonio Montero, a leading judge on Spain’s Supreme Court, threw his weight behind the campaign when he described the legal challenge over alleged misapplication of the Beckgam Law as ‘justified’.
Speaking in May, Mr Montro warned that fiscal sanctions were being used as a ‘pressure mechanism’ instead of an ‘exceptional resource’, meaning that taxpayers were being treated as ‘adversaries’.
The government insists that fewer than 1% of tax assessments are contested.
But new research from the Institute of Economic Studies (IEE) has revealed that 20% of the total tax value assessed by the AEAT is legally challenged and 60% of those challenges are successful, either through administrative reversal or court rulings.
A separate poll by the IEE highlighted the Hacienda’s widespread unpopularity, with 1 in 5 Spaniards, and nearly a third of young people, believing life would be better without taxes.
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