Tax Residence According to the OECD Model Convention
By Brigitte Jakoby, Jakoby Dr. Baumhof – Wirtschaftsprüfer Steuerberater Rechtsanwälte
Former case studies during our ITPG meetings showed that working out the tax residence of individuals can be tricky. Therefore, this article deals with the legal principles of Art. 4 OECD-MA 2017 as the basis of the tax residence of individuals or legal entities.
Art. 4 is of fundamental importance and determines the residency of a person in line with the doubletaxation agreements. The tax residence is the continuous criteria for the allocation of the income to one of the contracting states in accordance with Art. 6-22 OECD-MA.
Art. 4 para. 1: Basic Rule
Under the basic rule of Art. 4 para. 1, a residency of an individual or a legal entity in a contracting state exists when the right of taxation is fulfilled according to the domestic tax legislation. Double taxation agreements (DTAs) cannot cause tax obligations from within themselves; the basis must be domestic tax obligations.
The term “resident of a contracting state” means any person who, under the laws of that state, is liable to tax because of his domicile, residence, place of management, or any other criterion of a similar nature. The consequence then is unlimited tax liability in this state. This does not apply to persons who are liable to tax in respect only of income from sources in that state.
Art. 4 Para. 2: Resident of Both Contracting States
According to the DTAs an individual can only be resident of one contracting state. Where, by reason of the provisions of Art. 4 para. 1, an individual is a resident of both contracting states, then his status shall be determined as follows:
- He shall be deemed to be a resident only of the state in which he has a permanent home available to him; if he has a permanent home available to him in both states, he shall be deemed to be a resident only of the state with which his personal and economic relations are closer (centre of vital interests);
- If the state in which he has his centre of vital interests cannot be determined, or if he has not a permanent home available to him in either state, he shall be deemed to be a resident only of the state in which he has a habitual abode;
- if he has a habitual abode in both states, or in neither of them, he shall be deemed to be a resident only of the state of which he is a national;
- if he is a national of both states or of neither of them, the competent authorities of the contracting states shall settle the question by mutual agreement.
The contracting states are obliged to find a solution.
Art. 4 para. 3: Person Resident of Both Contracting States Other than an Individual
Art. 4 para. 3 regulates the residence of a person other than an individual, if resident in both contracting states in particular because of several places of management. Here the contracting states are not obliged to find a mutual agreement.
Brigitte JakobyGGI member firm
Jakoby Dr Baumhof - Wirtschaftsprüfer Steuerberater Rechtsanwälte
Advisory, Auditing & Accounting, Corporate Finance, Law Firm Services, Tax
Rothenburg o.d.T., Ebersberg, Germany
T: +49 9861 9405 0
Jakoby Dr Baumhof - Wirtschaftsprüfer Steuerberater Rechtsanwälte is a mediumsized interdisciplinary company located in the south of Germany, with offices in Rothenburg o.d. Tauber, located in Northern Bavaria, and Ebersberg, near Munich.
In 1987, Brigitte Jakoby started collaborating with her husband Eugen Jakoby, also a German Chartered Accountant and German Certified Tax Advisor. Since 1996, she has been one of the Senior Partners at Jakoby Dr. Baumhof.
Published: International Taxation Newsletter, No. 14, Spring 2021 l Photo: engel.ac - stock.adobe.com