Resolving Tax Residency Conflicts Between Spain and the UK
Non-dom taxpayers are those individuals resident in the United Kingdom but who declare their domicile (understood as the center of their vital interests) in a different country, so that a more favorable tax regime applies to them. This regime is called remittance basis and establishes that the “non dom” must be taxed in the United Kingdom for the income produced in that territory and for the income obtained abroad (provided that the latter have been remitted to the United Kingdom, otherwise, only a limited taxation would be applied).
What the Supreme Court asks itself is whether, in order to prove residence, it is sufficient to provide a certificate issued in the United Kingdom proving tax residence in that State, although it is not specified whether the taxpayer is taxed in the United Kingdom for his worldwide income or only for the income obtained in the United Kingdom.
The Supreme Court, resorting to the tie-breaker rules contained in the Double Taxation Avoidance Convention with the United Kingdom, establishes that the domestic legislation of each of the Contracting States will establish who is considered to be “resident”.
Therefore, it is possible that, in accordance with Spanish legislation, a taxpayer may be both resident for tax purposes in Spain and in the United Kingdom, and that, in accordance with the provisions of the DTAA, the tax residence is determined in Spain as the center of his vital interests.
The ruling concludes by stating that, although the tax residence certificates are perfectly valid to determine residence, they may be insufficient, so that, in case of conflict with the provisions of the regulations, the tie-breaker rules contained in the double taxation treaties must be used to determine tax residence.
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