Tax Law

Tax Residency in a FATCA and CRS World

by William H. Byrnes IV and Robert J. Munro *

Contributing Author: John Richardson, LL.B., J.D., www.CitizenshipSolutions.ca. Rewritten by William Byrnes with additional material included.

In a FATCA and CRS world tax residency is an important concept. A tax resident is a person who is subject to the imposition of full taxation in a country. Most countries impose taxation on the worldwide income of their tax residents. Some countries continue to employ a system of territorial taxation that subjects to taxation only income generated within the country. Countries determine when an individual is tax residency using a variety of criteria. In general, countries define, non-exclusively, tax residency by a number of days present in the country. However, the United States include citizens and holders of a visa of permanent residence (a 'green card') as tax residents without regard to their physical presence within the U.S. Because the U.S. imposes full tax on persons regardless of presence within the U.S., the U.S. refers to its taxable subjects as 'U.S. persons'. A comprehensive list of national rules for determining tax residency is published by the OECD on its portal for its Common Reporting Standard (CRS). [Available at https://www.oecd.org/tax/automatic-exchange/crs-implementation-and-assistance/tax-residency/ (accessed June 15, 2017).

The determination of tax residency is generally based on a deeming provision or decided by a determination based on the facts. Some countries base tax residency on both deeming provisions and a facts and circumstances test. Canada is an example of a country that determines tax residence on either deemed residence or residence based on the facts and circumstances. If an individual is physically present 183 or more days in a calendar year in Canada, then Canada deems the individual a tax resident of Canada. However, an individual may be physically present less than 183 days in Canada and still be determined to be a tax resident of Canada. If the facts and circumstances of an individual's life evidence a sufficiently strong connection to Canada, then the individual risks being considered a tax resident. Such circumstances indicative of a connection to Canada include, nonexclusively: a permanent home in Canada, Canadian credit cards, bank accounts of Canada based institutions, a Canadian driver license, and Canadian health insurance. A facts and circumstances inquiry may be triggered when an individual seeks to sever tax residency with Canada.

The country in which an individual primarily resides is not definitively the country of tax residence, or at least not the sole country of tax residence. It is possible for an individual to reside in only one country and yet be considered a tax resident of multiple countries. The most common example of multiple tax residency is whereby a U.S. citizen or U.S. permanent resident visa holder resides outside the U.S. U.S. citizens and permanent residents are always U.S. tax resident regardless of also being characterized as tax resident of another country.

...

* Professor William H. Byrnes: Associate Dean of Texas A&M University School of Law. William has been commissioned by a number of governments for guidance on tax and professional education policy. In 1994 William pioneered online legal education, and in 1998 created the first online LL.M. acquiesced by the ABA. He speaks globally on best practices for distance education.

* Dr. Robert J. Munro: Professor (Adjunct), Texas A&M University School of Law.

Information referenced herein is provided for educational purposes only. For legal advice applicable to the facts of your particular situation, you should obtain the services of a qualified attorney licensed to practice law in your state.

LEXIS users can view the complete commentary HERE. Additional fees may apply. (Approx. 12 pages)