Criteria for determining tax residence

The criteria for determining tax residence are of crucial importance in the field of international taxation. The tax residence of an individual or a company is a decisive concept in the application of tax laws. tax laws and the allocation of tax liabilities between countries. Understanding and correctly applying these criteria helps determine the country in which a person or entity is considered resident for tax purposes, and therefore subject to the applicable tax regimes.

Criteria may vary from country to country, but some common elements can be identified. They generally include aspects such as length of physical presence, personal ties, economic interests and vital centers of interest. These criteria enable tax authorities to determine whether a person or company has a significant and lasting presence in a country, thereby justifying its subjection to that country's tax obligations.

The importance of tax domicile lies in the fact that it determines the jurisdiction competent to tax a taxpayer's income, capital gains, property and other assets. Dual tax residence, i.e. where the criteria are met in several countries, can give rise to conflicts of tax jurisdiction and situations of double taxation.

Against this backdrop, this article will explore the determination criteria, focusing on the key elements taken into account by Portugal and France.

Criteria for determining tax residence under Portuguese domestic law

The tax domicile plays a fundamental role in the field of taxation, as it determines the taxable income. tax obligations of an individual in a given country. In Portugal, tax residence is established on the basis of specific criteria set out in domestic tax legislation. This analysis aims to provide an in-depth analysis of the criteria for determining tax residence under Portuguese domestic law.

The habitual residence criterion :

Under Portuguese domestic law, habitual residence is one of the main criteria used to determine an individual's tax domicile. Habitual residence is defined as the place where a person resides permanently and with the intention of establishing his or her personal and family life. It is important to note that length of stay is not a determining factor in this criterion, but residence must be continuous and stable.

The physical presence criterion :

Another crucial criterion is physical presence. If an individual stays in Portugal for more than 183 days in a calendar year, he or she is generally considered a Portuguese tax domicile. These days of presence do not have to be consecutive, and exceptions can be made for temporary stays linked to professional activities or for health reasons.

Center of vital interests :

The center of vital interests is an essential criterion for determining tax domicile in Portugal. It refers to an individual's personal, economic and family interests. If most of these interests are located in Portugal, the individual will be considered a Portuguese tax resident. Professional activities, investments, sources of income and family ties are taken into account to assess the center of vital interests.

The length of absence criterion:

Portuguese domestic law recognizes the possibility of being considered a tax resident even when absent from the country. However, if an individual is absent from Portugal for more than 183 consecutive or non-consecutive days in a calendar year, he or she risks losing Portuguese tax residency. This provision is designed to prevent abuses linked to frequent or prolonged travel.

The presumption of tax residence criterion :

Portuguese domestic law also provides for presumptions of tax domicile. For example, if an individual has a spouse who is not legally separated and minor children residing in Portugal, he or she is presumed to be a Portuguese tax resident. This presumption is rebuttable, i.e. it is possible to prove that, despite these circumstances, tax residence has not been established in Portugal.

Determination of tax domicile in Portugal is based on criteria such as habitual residence, physical presence, center of vital interests and length of absence. These criteria are essential for the Portuguese tax authorities to determine taxpayers' tax obligations and avoid double taxation. Taxpayers need to understand these criteria and their application in order to comply correctly with Portuguese tax legislation.

Determination criteria in relation to the tax treaty between France and Portugal

The tax treaty between France and Portugal sets out the criteria for determining the tax residence of taxpayers in relations between the two countries. These criteria are essential for avoiding double taxation and resolving conflict situations. Here are the main criteria defined by the treaty, which is based on the domestic rules of both countries:

The stay criterion:

Under Article 4 of the treaty, an individual is considered to be domiciled for tax purposes in a country if he or she is ordinarily resident there. The notion of habitual residence takes into account criteria such as the duration and frequency of stays. If a person stays for more than 183 days in a calendar year in one of the countries, he or she is generally considered a tax resident of that country. However, it should be noted that the treaty specifies that days of stay in the country are not to be counted if they are mainly related to temporary stays for professional activities.

The permanent home criterion:

In accordance with Article 4 of the treaty, if a person has a permanent home in one of the countries, he or she is considered a tax resident of that country, unless the center of vital interests is located in the other country. A permanent home refers to an ordinary residence where the person regularly resides and which is available for personal and family use.

Center of vital interests :

Under Article 4 of the treaty, if a person's center of vital interests is mainly located in one of the countries, he or she is considered a tax resident of that country. Vital interests may be of a personal, economic or professional nature. This means that the person has economic ties, significant professional activities, major investments or close family ties in one of the countries. The purpose of this criterion is to determine where the person's interests and activities are truly located.

In the event of a tax residency dispute :

If a person is considered a tax domicile of both countries under their national legislation, the tax treaty between France and Portugal provides additional criteria for determining his or her sole tax residence. In such cases, other factors such as place of habitual residence, nationality, location of assets, as well as consultation procedures between the tax authorities of the two countries may be taken into account to resolve the dispute.

In conclusion, the tax treaty between France and Portugal sets out criteria for determining tax domicile, taking into account habitual residence, permanent dwelling and center of vital interests. These criteria make it possible to resolve situations of dual tax residence, and to guarantee the correct application of the treaty.

Determination criteria under French domestic law

The relevant legal provisions can be found in article 4 B of the French General Tax Code (CGI). This report will highlight the various conditions that determine whether a person is considered to be domiciled in France for tax purposes.

- Criteria for tax residence in France

- Article 4 B of the CGI sets out the following criteria for determining tax residence in France:

a. Domicile or principal residence in France: Persons who have their domicile or principal residence in France are considered to be resident in France for tax purposes.

b. Professional activity exercised in France: Persons exercising a professional activity in France, whether salaried or not, are generally considered to be resident in France for tax purposes, unless they can prove that this activity is exercised on an ancillary basis.

c. Center of economic interests in France: Those who have the center of their economic interests in France are also considered to be tax residents in France.

• Special cases of company directors
• Directors of companies headquartered in France with sales in excess of 250 million euros are deemed to carry out their business activities in France. In addition, companies that control other companies are also deemed to carry out their main business activity in France, unless they can prove otherwise.

Administrative interpretation and case law

• Administrative doctrine and case law have widely commented on and interpreted these criteria for tax domicile in France. For example, in the case of multiple activities or sources of income, the taxpayer is liable for tax at the center of his income. In addition, holding shares in French companies or owning real estate in France can also be taken into account to determine tax residence.

Case law examples

Several case law decisions illustrate the interpretation of the criteria for tax residence in France:

• Real estate that does not generate income cannot be taken into account when determining the location of the center of economic interests.
• Holding shares in non-commercial real estate companies in France and active bank accounts in France may indicate that the center of economic interests is located in France.
• The size of the taxpayer's income in France, relative to his or her activities abroad, can also be a decisive criterion for establishing tax residence in France.

In conclusion, tax domicile in France is determined by several criteria, such as domicile or principal residence in France, the exercise of a professional activity in France and the center of economic interests in France.