Special Taxation Regimes for High-net-worth Individuals

Challenges to Article 4 and the Definition of Tax Residence

Resumo

This article examines the compatibility of special tax regimes for newly domiciled individuals with the existing elements for the characterisation of tax residence for the purposes of a tax treaty. Special tax regimes for individuals grant more favourable tax treatment to attract foreign individuals who meet certain criteria, often mixing a level of investment and permanence in the new jurisdiction. The research question of this article is whether these criteria, however, stretch the traditional elements for the characterisation of tax residence as set out in Article 4 of tax treaties. Indeed, Article 4 is an example of renvoi, in that it defines a resident of a State as a person liable to tax under the laws of that State. However, the article argues that Article 4 contains elements that can be construed as a minimum standard of residence. It depicts Article 4 of the Model Conventions and some deviations, arguing that such a provision contains a twofold definition: (i) liability to tax; and (ii) sufficient nexus. While some special tax regimes partially waive the liability to tax, the literature and existing deviations in Article 4 address the non-liability-to-tax offered by such regimes. The article argues that the tie-breaker rules provide a glimpse of elements considered representative of a sufficient nexus to a country. The article concludes that special tax regimes overlook the traditional elements of tax residence.