The Keys to Residence for Tax Purposes
On 15th May 2017, ESADE Alumni hosted a Refresher Programme session entitled ''Tax Residence Conflicts in International Mobility'', led by Jesús Romero, Academic Assistant at ESADE Law School.
Free trade, globalisation and the growing trend towards the internationalisation of our activities have led to the emergence of new issues that prosecutors must address on an individual basis. Because of this reality, tax fraud is on the rise, prompting the authorities to establish a series of mechanisms designed to avoid these situations. This issue has become highly complex, especially because different jurisdictions have different criteria and multiple tax systems come into play.
The Refresher Programme session responded to the need to clearly define ''residence for tax purposes'' and to describe its key features, despite the fact that this concept cannot be objectively established and has in fact been interpreted in various ways by the administration itself. Participants discussed the criteria that the administration takes into account when establishing a change in habitual residence, the effects of loss of residence, and impact-mitigation mechanisms.
Mr. Romero began the session by commenting on some of the premises of residence for tax purposes, emphasising in particular the fact that changing one’s tax residence does not amount to tax fraud unless it is artificial. He explained that a person’s habitual residence is in Spanish territory when he or she meets criteria that tend to be alternative and not cumulative: permanence and centre of economic interests. A third criterion – family presumption – is also taken into account.
The criterion of permanence is governed by the norm of spending 183 days of a natural year in Spanish territory. In this case, sporadic absences are counted, unless tax residence can be certified, but temporary stays in Spain based on cultural or humanitarian collaboration agreements are not counted. The criterion of permanence usually takes precedence over all other criteria.
However, the location of a person’s centre of economic interests also plays a very important role in establishing his or her residence for tax purposes. Residence in Spain is recognised when this country directly or indirectly constitutes the person’s main nucleus or base of activities and economic interests. A person is allowed to pay taxes as a resident of Spain if more than 75% of his or her income or assets is derived from Spanish territory.
The criterion of family presumption uses the rebuttable presumption that a person’s habitual residence is with his or her spouse or minor children who are residents of Spain. It also envisages a conclusive – or irrebuttable – presumption, which calls for tax quarantine, in which a Spaniard’s change of residence to a tax haven converts him or her into a non-resident but maintains his or her status as a taxpayer. Under the rules for diplomatic missions, non-resident Spanish nationals and resident foreigners are treated without reciprocity.
The criteria for resolving dual-residence conflicts are, firstly, to determine the person’s permanent place of residence or the centre of his or her vital interests, which is where his or her closest personal and economic relationships are found. If the person’s permanent place of residence cannot be verified, the next step is to determine the place where the person spends the most time living – a concept comparable to habitual residence. The fourth criterion is nationality, which can be used to establish residence in one place or another. Finally, there is the possibility of an amicable procedure, which consists in submitting the case to the competent authority of the person’s state of residence.
Mr. Romero then discussed the possible effects of losing residence for tax purposes, such as charges of unsettled tax debt, with a particular focus on the European Union. Another effect is the exit tax, which exploits capital gains on financial assets and applies to estates of medium or large size. Similarly, taxes are levied on income, assets, inheritances and donations.
Mr. Romero wrapped up the session by summarising key impact-mitigation mechanisms, including preventive tax planning, the €60,100 exemption for work performed abroad, the international double-taxation deduction and the special tax regime for workers sent to work in Spanish territory, which provides very tantalising conditions that attract residents.
ESADE Alumni is pleased to invite you to ''Tax domicile issues related to international mobility'', a talk in the Refresher Programme by Jesús Romero, academic assistant in the Department of Law School at ESADE.
In today’s global environment, international relocation is increasingly common for work, finance, study or family reasons, and also due to a desire for a more secure legal and social setting. The focus on globalisation often clashes with the desire of different states to prevent tax avoidance and not lose taxpayers, leading them to design mechanisms to retain such persons and/or attract them purely for tax purposes. This backdrop is complicated further when more than one jurisdiction and its tax system enter the fray driven by a desire to be the tax domicile of an individual, which can give rise to double taxation and considerable legal uncertainty.
The purpose of this talk is to discuss tax domicile rulings made recently in administrative doctrine and by tax inspection entities and the Spanish Courts, and also recent developments and the methods that taxpayers can use to remedy issues of dual residence or double taxation, which involve countless factors that depend entirely on demonstrating a great number of factual elements.
Jesús Romero Collado
Partner in the fiscal planning department at the Crowe Horwath tax and law firm in Barcelona, a member of Crowe Horwath International where he provides tax advisory services about business restructuring operations, capital frameworks for tax optimization in family offices and large estates, and also currently the head of the firm’s international taxation department.
International tax partner in the international tax department at the Crowe Horwath tax and law firm, particularly in the areas of taxation for non-residents, real estate, holding companies, employee relocations and international structuring, providing advice for customers forwarded by other firms belonging to the Crowe Horwath International network in its investment and implementation projects in Spain, and also for customers of the Crowe Horwath tax and law firm who need help with the taxation of their investment projects outside Spain. He also coordinates the assignments to be carried out in conjunction with other firms belonging to the Crowe Horwath International network in more than 107 countries.
He was previously a practicing lawyer in the tax law department at A&S Gabinete de Abogados y Consultores, in Barcelona. Expert in the tax planning and capital restructuration of family firms. Expert in taxation related to succession in family firms. Deputy head of the mercantile law department, responsible for corporate operations and the respective taxation.
Each member may bring a maximum of one guest.
See you there!
How to get to ESADE:
Public transport: Bus (22, 64, 78, 63 and 75), Metro (L3 Maria Cristina) and FGC (L6 Reina Elisenda).
Car: NEW municipal parking B: SM in c / Marqués de Mulhacen, 51.
For further information:
For members only!
Presentation used by Jesús Romero