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08. June 2021 | Second home: avoid double residence under the DTA (this contribution)

18. December 2020 | Double Taxation Agreement: Purpose / Effect / Benefits

28. December 2020 | Overview of most important articles of the OECD-MA

11. January 2021 | Double Taxation and Double Taxation Agreement

You have an apartment here in Germany and a second apartment in Austria. Germany has concluded a double taxation agreement with Austria. Due to the second home in Austria, they can be resident in both countries. The decisive factor here is the type. 4 of the OECD Model Agreement. You should definitely avoid that. We explain how it comes about, what consequences this has and in the further course, how they can avoid duplicity.

Double Taxation Agreement (DTA) distributes the taxation rights between the contracting states if both states have a taxation right in income. They therefore prevent the emergence of a so-called legal double taxation. This is the case when a similar tax is levied on the same tax object (asset) in the same taxable person (taxable person) twice within an identical period of time.

The DTAs distinguish between the country of residence and the country of source in the context of the distribution of taxation rights (see Art. 4 I S. 2 OECD-MA). The State of residence is the State in which the person is resident. The source state, on the other hand, is regularly the one in which income is generated. The article deals with the residence of natural persons within the meaning of Art. 3 I lit. a) OECD-MA.

The residency of natural persons is regulated in the OECD-MA with Art. 4 I, II OECD-MA. paragraphs 1 and 2 in chronological succession.

First of all, a person is resident in the Contracting State under Article 4 I 1 OECD-MA by having his residence or permanent residence. A DBA immanent definition of the terms residence and permanent residence does not exist. It is therefore necessary to use the respective national law via Article 3 II OECD-MA. In Germany, therefore, §§ 8, 9 AO come into consideration.

According to § 8 AO, the residence is where someone holds an apartment under circumstances that suggest that he will keep and use the apartment. These terms are very vague and therefore require specification. Apartment means an enclosed space suitable for living. This means that under certain circumstances even a small Schrebergartenhausschen, if it has, for example, a cooking area, running water, as well as a toilet or electricity, can be an apartment.

Holding in this sense requires as much power as possible over the premises. It is therefore necessary that one has a key to the apartment and can exclude others from use. This was even assumed by a hotel guest who has only and always stayed in the same hotel room for a long time, so that he is in fact treated like a tenant of a normal rental apartment.

In addition, external circumstances must predict that you want to keep and use the apartment in the future. Such circumstances are present, for example, if you regularly return to the apartment and also stay there and wash. Clothing, care products or hygiene products (for example, a toothbrush) present there are important indications.

If you have a key to a second home, you have sufficient power of disposal. This also constitutes an apartment within the meaning of § 8 AO. It can only be disputed whether you want to keep and use them in the future. External circumstances are crucial. It depends on whether you keep objects in the second apartment that allow permanent living. But that will usually be the case. Leisure activities such as the television, sports equipment or books also allow the conclusion to be drawn on the future retention and use of the apartment. Therefore, a second home must regularly be assumed to be two residences.

Furthermore, the permanent residence can also justify the residence of the natural person. The permanent residence shall be interpreted with regard to the habitual residence within the meaning of § 9 AO. Accordingly, the permanent stay is in the place where someone is staying under circumstances that show that he is not only temporarily staying there. A consecutive six-month stay is therefore to be regarded as a permanent stay. Short-term interruptions do not hurt. However, such short-term interruptions can no longer be assumed if you come home several times a week. It is important to realize that the taxpayer can also have several permanent stays. It is conceivable that you are equally frequent in Austria and Germany. But it is also possible that you have a permanent stay nowhere since you are traveling a lot.

It is possible under these circumstances to have two residences in different countries. Furthermore, if you have no residence in a country due to non-fulfilment of the requirements, you can still establish an habitual residence there. Consequently, it is possible that they are resident in several states and therefore are dual residents. However, if they are previously resident in Germany and then in the Netherlands, as they now have their permanent residence and residence there, you must have the German exit taxation in mind.

In the case of dual residence of the natural person, the so-called tie-breaker rule of type 4 II OECD-MA is used. This standard must also be applied chronologically. It is important, however, to ensure that it is not interpreted primarily in terms of national law. Rather, the terms must be interpreted in accordance with the DTA.

The first distinguishing feature is in accordance with Art. 4 II lit. a) OECD-MA the permanent residence. The natural person is therefore resident in the State only by having a permanent residence. This is a qualified residence. However, this characteristic does not have significant distinctiveness. In particular, in the case of a second home, permanent residences are to be assumed in both countries.

If the person has a permanent residence in both states, the place with which he has a closer economic and personal relationship is decisive Art. 4 II lit. b) OECD-MA. In this context, reference is made to the place of occupation or the place of residence of family and friends. However, it is quite conceivable that the center of life's interests cannot be precisely determined, because both in one and in the other state there are weighty indications to justify the same.

If the center of life's interests cannot be determined, then the habitual residence is decisive. It shall be interpreted in accordance with paragraph 1 of this Article. Therefore, the place where you have your permanent stay is decisive. As explained above, however, this place can be in several places or not exist at all. Therefore, even in this case, the taxation right cannot regularly be distributed.

In accordance with Art. 4 II (d), the dual residence means that the two countries determine the residence by consensus. Of course, every country is careful not to lose the tax base by the fact that the taxpayer is now considered to be resident in another country. It is therefore questionable whether the states can agree. If this is not the case, their entire world income will be taxed twice. This can hardly be prevented due to the dual residence.

In view of the legal consequences mentioned, you should definitely avoid being considered as resident in both countries. Therefore, it is necessary that they accept one of the citizenships. In addition, you can make sure that you can assign the center of life to one of the apartments. For this, you should be able to present sufficiently substantiated that you practice the profession only from one of the places, also carry out your leisure activities there and meet friends and relatives. On the other hand, you should stay at one of the residences for a period of 6 months. Furthermore, it is important that you do not regularly move your place of residence between the individual apartments. In this case, exit taxation may occur.