Tax Situation in an International Context

If you are in a situation of cross border employment, short term/long term assignment, salary split etc., different countries might want to tax your income/capital as you might have links with more than 1 country, for example:

• You are living in country A and working in country B
• You are living in country A and working in country A and country B
• You are seconded to country B while your family resides in country A
• Etc.

In such a cross border situation, the tax treaties concluded between countries determine the rules of taxation of income and capital. These treaties determine which country has the right to tax the income.

The first step to analyze such complex situation is to determine in which country you are considered as a tax resident as per domestic tax law of that country.

If you are only considered a tax resident in one country (as per domestic tax law), this country should be considered as the country of tax residency for the application of the tax treaty.

If you are considered a tax resident in two countries under the respective domestic tax laws (case of dual residency), article 4 of the tax treaties has a series of tie-breaker rules to determine the country of tax residency for the application of the tax treaty. These tie-breaker rules are as follows:

• the individual is treaty resident in the State where he has a permanent home available. If he has a permanent home available in both States, then he will be treaty resident where his personal and economic ties are closest - commonly this is called the 'center of vital interests';
• where the center of vital interests cannot be determined, or if he does not have a permanent home available in either State, then the person is resident where he has his habitual abode;
• if this cannot be determined, then he is treaty resident in the State of which he is a national;
• if he is a national of both States or of neither States, then the position is determined by mutual agreement of the competent authorities.

The permanence of the home is essential meaning that the individual has arranged to have the home available to him at all times and continuously (and not occasionally for the purposes of a stay which is necessarily of short duration, such as travel for pleasure, business travel, education travel,…)

When looking at the individual's center of vital interests, we should consider following factors:

- family and social relations

- his occupations

- his political, cultural and other activities

- his place of business

- the place from where he administers his property

- etc.

Once an individual's residency status has been determined, we can apply the employment income article of the tax treaty (usually article 15 of the tax treaties) to decides which country has the power to tax the income/capital.