Our law firm, specialized in international taxation, frequently deals with conflict of tax residency and double taxation agreements. These tax problems are characterized by their technical complexity and require well-founded legal strategies adapted to international regulations.

Thanks to our experience, we are able to identify, anticipate and effectively resolve these situations, thus ensuring the protection of our clients’ economic and tax interests.

What causes a Tax Residency Conflict?

A tax residency conflict occurs when an individual or legal entity is considered a tax resident simultaneously in two or more countries due to the fulfillment of criteria established by each jurisdiction. These scenarios frequently arise due to international labor mobility, investments in various jurisdictions or complex personal circumstances. For example, in Spain, a person is considered a tax resident if he/she spends more than 183 days in Spanish territory during a calendar year, if he/she has the main core of his/her economic interests here, or if his/her spouse and minor children habitually reside in Spain.

In our firm of lawyers and economists, we are experts in international taxation and in the application of double taxation treaties, helping our clients to resolve these complex situations.

What exactly are Double Taxation Agreements and what is their function?

Double Taxation Agreements (DTA) are bilateral agreements signed between countries to avoid double taxation of the same income, facilitating international trade and investments. These treaties prevail over domestic legislation and provide legal and fiscal security to taxpayers active internationally. For example, a Spanish investor with real estate interests in Germany was able to significantly reduce his tax burden thanks to the Spain-Germany DTA, which avoided double taxation on his rental income. They clearly specify the taxation applicable to different types of income (labor, capital, real estate, etc.) and establish defined procedures for resolving conflicts arising from double tax residence.

The official certification of tax residence is key to avoid international tax conflicts, even in cases of international inheritance. At Pérez Parras Economists and Lawyers, with offices in Malaga and Nerja, we are specialists in International Tax Law and advise clients on all five continents. For example, we helped a person resident in Spain who inherited assets from a relative in Germany, to correctly accredit his tax residence, thus avoiding double taxation in inheritance tax.

The tie-breaker rule: key in Conflict of Tax Residency and Double Taxation Agreements

The “tie-breaker rule”, present in most of the DTAs, such as the one signed between Spain and the United Kingdom, establishes clear sequential criteria to resolve these conflicts. The permanent residence available to the taxpayer is analyzed first, followed by the center of vital interests, which integrates both personal and economic aspects, then the habitual residence and, finally, the nationality. The Spanish Supreme Court emphasizes the importance of a detailed evaluation of the taxpayer’s activities and economic interests, including the main source of income, the management of assets and the location of wealth.

According to the OECD Model Convention, the criteria for resolving dual residency conflicts include:

• Permanent dwelling: A person is considered resident in the country where the person has a permanent dwelling at his or her disposal.
• Center of vital interests: This criterion evaluates the taxpayer’s closest personal and economic relationships.
• Place of habitual residence: If the previous criteria are not conclusive, it is analyzed where the person habitually resides.
• Nationality: Ultimately, nationality is used to resolve the conflict.

These criteria are applicable to both individuals and legal entities, and their correct interpretation is key to avoid tax problems.

For example, the DTA between Spain and the United Kingdom establishes that the “center of vital interests” is a key criterion for determining tax residence. This concept, which is broader than the “center of economic interests” of the Spanish domestic regulations, includes both personal and economic relationships.

The crucial importance of the “center of vital interests”

The “center of vital interests” is a broad and essential concept that transcends the mere core economic interests of the Spanish regulations. It encompasses an in-depth analysis that includes economic, social, family and cultural factors of the taxpayer. This comprehensive assessment ensures a fair and realistic interpretation of tax residency in complex international situations, helping to resolve conflicts in a fair and legally sound manner.

Specific conflicts: The Spain-Gibraltar agreement and its influence on the Conflicht of Tax Residency and Double Taxation Agreements

The agreement between Spain and the United Kingdom regarding Gibraltar establishes detailed rules to solve specific tax residency conflicts between both territories. In this framework, tax residence is considered to be exclusive to Spain if more than 183 annual overnight stays are made in Spanish territory, or if two thirds of the taxpayer’s net assets are located in Spain. These specific rules aim to prevent manipulations and provide clear and objective criteria to determine tax residence.

Tax implications of residency conflicts

Tax residency conflicts can have important tax implications, such as the obligation to be taxed on worldwide income in more than one country. In addition, in the case of companies, a residence conflict may result in the obligation to pay corporate income tax in Spain, even if the company is incorporated in another country. Therefore, it is essential to have expert advice to avoid tax problems and ensure compliance with the regulations.

The importance of official documentation to resolve tax residency conflicts

Official tax residency certification is essential to effectively resolve conflicts related to tax residency and double taxation treaties. For example, one of our clients was able to successfully resolve a tax residency conflict between Spain and France by obtaining his official certificate quickly and properly. This allowed him to clarify his tax situation before the French authorities, avoiding double taxation and possible penalties. In Spain there are specific official forms to properly accredit tax residence before other countries. These certificates can be requested telematically or in person at the spanish Tax Agency, which not only facilitates the current resolution of the conflict, but also prevents future international tax problems.

Specialized advice to effectively resolve Conflict of Tax Residency Conflict and Double Taxation Agreements

Our firm offers comprehensive and highly specialized advice on international taxation, being experts in the practical and effective application of Double Taxation Agreements. Thanks to our intervention, clients have been able to significantly reduce their tax burdens through strategic planning, avoid penalties arising from international conflicts, and obtain official tax residency certifications quickly and accurately, facilitating their international operations and ensuring global tax compliance.

If you need to declare your assets and rights abroad, using the Spanish Form 720, at Perez Parras Economists and Lawyers we are experts in International Tax Law. Contact us so that we can help you, give you a quote and make your declaration of assets abroad correctly, avoiding the penalties that any type of error in the Spanish Model 720 entails. Our professional team, with offices in the centre of Malaga and in Nerja, is made up of lawyers with double degrees in Law and Economics, bilingual and experts in national and international taxation, for residents and non-residents. Likewise, if you need help with your taxes, or if you have to justify your tax return at the request of the Tax Agency, do not hesitate to contact Pérez Parras Economists y Lawyers so that its legal-tax department can advise you correctly.

We offer personalized services for:

• Analyze your tax situation and determine your tax residence.
• Advise you on the application of Double Taxation Agreements to avoid double taxation.
• Represent you before the tax authorities in amicable proceedings, as established in Article 7 of the Regulation on Amicable Proceedings in Direct Taxation.
• Assist you in documenting and proving your tax residence in the relevant country.