The Binding Reply

A recent Danish Binding Reply, SKM2023.70.SR, addressed the tax residency of an individual fully taxed in Denmark and Italy. The decision was based on the individual’s personal and economic interests in each country.

The individual had his spouse and children residing in Denmark and would visit them on weekends and approximately one week per month, if possible, for work. On the other hand, the individual’s family and friends lived in Italy, and he also had his main economic interests in Italy, where he performed most of his work. The individual only worked in Denmark to a limited extent and had a large villa and most of his assets in Italy.

The Tax Council (“Skatterådet”) found that it was not possible to determine with certainty in which of the two states the individual had the strongest personal and economic interests, according to the Denmark-Italy double taxation treaty, Article 4, paragraph 2, letter a).

The Tax Council ruled that based on the rule in the double taxation treaty between Denmark and Italy, Article 4, paragraph 2, letter b), the individual had to be considered a tax resident in Italy as he typically stayed there in a predominant manner.

Article 4 of the OECD tax treaty

Article 4 of the OECD tax treaty refers to the determination of a person’s tax residency based on their personal and economic ties to the countries involved. This article aims to prevent an individual from being taxed as a resident in both countries, thereby avoiding double taxation.

Article 4 outlines various criteria for determining a person’s tax residency, including the place where the individual has their permanent home, the place where they have the center of their economic interests, and the place where they regularly stay. The tax treaty also allows the tax authorities in each country to consider other factors, such as the duration and nature of the individual’s stays in each country, the individual’s family ties, and their social and cultural ties.

The OECD tax treaty is designed to provide guidance and certainty to individuals and companies who have a business or personal interests in multiple countries. The treaty aims to ensure that individuals and companies are taxed fairly and efficiently by establishing a clear set of rules for determining tax residency.

Key Takeaway

The Binding Reply highlights the importance of understanding international tax treaties and how they can impact your tax residency. Article 4 of the OECD tax treaty provides the rules for determining tax residency, based on the individual’s personal and economic interests in each country. In situations where it is not clear which country has the strongest ties, United Tax Network can provide valuable assistance to ensure you are properly taxed and avoid double taxation. We can help you understand the provisions of the tax treaty, navigate complex regulations and requirements, identify opportunities, and ensure compliance with all relevant laws and regulations.