Spanish Supreme Court: Tax Residence Certificates From Treaty Countries Are Valid

The Spanish Supreme Court’s STS 2735/2023 ruling clarifies that, in the event of a tax residence conflict of a taxpayer, the tax residence certificate issued by another State (e.g. the United States) and subscribed to in a Double Taxation Agreement (DTA) is valid and cannot be automatically rejected by the Tax Administration.

On 12 June 2023, the Supreme Court issued a ruling in relation to tax residence conflicts between States that had DTAs. According to this judgment, and in order to resolve these conflicts, the criteria established therein must be applied, specifically in Article 4.2.

The national administrative or judicial bodies do not have jurisdiction to judge the circumstances in which a certificate of tax residence issued by another state has been issued, nor, therefore, can they disregard the content of the certificate issued by the tax authorities of a State that has signed a DTA with Spain, especially when that certificate has been issued for the purposes of the Convention.

The content of the Convention cannot be rejected by the Spanish authorities precisely because the aforementioned Convention has been signed, since this implies contravening the provisions of Article 96 of the Spanish Constitution, and Articles 1.1, 1.2 and 4.1 of the DTC, the last provision of which states:

The term “resident of a Contracting State” means any person who under the law of that State is subject to taxation in that State by reason of his domicile, residence, place of address, place of incorporation or any other criterion of a similar nature.

Accordingly, in the event of a residence conflict, the “tie-breaker” rules provided for its resolution in the DTA must be applied. The tie-breaker rules to determine tax residency when an individual is considered a resident by both nations are set out in Article 4(2) of the Treaty, as previously mentioned. The hierarchy is:

1. Permanent home: The place where the individual has a permanent home available;
2. Centre of vital interests: The place where the individual’s personal and economic relations are closer;
3. Habitual abode: The place where the individual habitually lives; and
4. Nationality: The place where the individual is a national.

If the four circumstances indicated were to occur in both States, or none of them were to occur, a mutual agreement procedure would have to be used to resolve the conflict.

In this judgment, the Court also determined that the concept of “centre of vital interests” in Article 4.2 of the DTC is broader than the concept of “core of economic interests” in Article 9.1 b) of Law 35/2006 of 28 November 2006 on Personal Income Tax, on which the Administration relies; so both concepts are not comparable when assessing a taxpayer's tax residence.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.