Domestic Law Residence Tests Overview

The concept of tax residency is defined by domestic laws in each country and is fundamental to determining tax liability and eligibility for international tax treaties.

These tests focus on quantifiable aspects of a person's connection to a country. Examples include: - Physical presence for a minimum period (e.g., over 183 days)- Holding a residence permit- Being a citizen of a country

These tests consider a person's emotional tie to a country, based on factors like: - Having a permanent home or habitually residing there - Having strong economic and social connections (e.g., family, income, investments)

A company's tax residency is determined based on its place of business and management. Tests include: - Incorporation or legal seat (registered office) in a country - Location of central management and control - Day-to-day management location

Double Tax Treaties (DTAs) aim to avoid double taxation of income across different countries. They rely on the concept of tax residency to determine which country has the right to tax income.

The OECD Model DTA is a framework for designing DTAs. It defines a 'resident of a Contracting State' as anyone liable to tax there based on: - Domicile - Residence - Place of management - Other similar factors

When a person or company meets the residency requirements of two countries, their tax status becomes uncertain. DTAs include 'tie-breaker rules' to resolve these situations based on specific criteria.

In a globalized economy, companies may operate in many locations, making it challenging to pinpoint their 'place of effective management' for tax purposes. This can lead to disagreements about their tax residency.

Rules used to determine which country has the primary right to tax an individual or company with dual residence.

The country where a person has their main home and where they have significant personal and economic connections.

The place where a company's key management and commercial decisions are made, often determined by where the board of directors meets.

The location where someone spends the most time and has the highest degree of personal and economic ties.

The concept of the location of tax residence has become increasingly complex, due to the rise of virtual operations, decentralized management, and mobile decision-making.

With globalization and advancements in technology, it's becoming more difficult to pinpoint the

The traditional 'Place of Effective Management' rule struggles to deal with companies that have decentralized decision-making or mobile executives.

When a company is considered resident in multiple countries, conflicts arise over who has the right to tax their income and profits.

The objective of tax residence rules is to allocate the right to tax income and profits fairly and avoid double taxation between countries.