Tie breaker will come into picture when both parties tally with each other in all common scenarios. So, there is a need for additional conditions/ rules which either of the party should satisfy or covered to make them unique among the both.
The recent ICC world cup finals were tied as both England and New Zealand scored same runs then they tried the super over as they are still on equal stage then considered the maximum 4’s and 6’s in the match. Same is the case of recent Wimbledon when the played 5 sets are tied, they played the 6th set to decide.
In a similar fashion when a person is considered as Resident by more than one contracting state for a particular tax year under the respective tax laws so the tax liability will be determined based on the accepted Double tax avoidance agreements (DTAA’s) entered between the countries , the same arises due to the globalization where persons are working across the globe physically and virtually too.
Article 4 of the DTAA’s generally deal with the Residence, tie breaker rules etc which helps the revenue officials of the contracting states to determine the Residential status of the person. Tie Breaker test is important because once you tie break to India you will be considered as Resident and all the global Income is taxable in India.
Let’s discuss about the same –
Permanent Home– Home should be made available to the person irrespective of his stay in that place. A person who is resident of more than one state will be considered as resident only where he is having home made available to him. Home need not be of his own can even be of temporary but should be made available to him all the time. So if they have home made available to him at one place out of the two places where he is resident then they will tie break to the country where the permanent home is made available. This shows the center of personal and economic relationship closer to that country. In the absence of the same we will be required to move to next condition to determine the residential status.
Habitual Abode- Centre of Vital interest – By name its clear based on his habitual residence out of the two countries where he is resident that country they will be considered as resident. Habitual abode means related to where his family stays, persons dependent on him and their place of stay, majority of economic activities of him etc needs to be analyzed in detail.So, their past history will be considered to determine the same. In the absence of clarity over the same then will move to next test to make him tie break to one country.
Nationality – When the Permanent home test, habitual abode test fails then we need to check the nationality to which country he belongs. Based on that he will tie break to one country. Even at that stage if the same is not decided then need to move to last test.
Mutual Agreement Procedure (MAP) – If we are unable to decide a residential status based on the above criteria then through MAP both the contracting states by their respective designated authorities will discuss and decide as per the procedure laid out between the countries to determine the residential status of the person for that year.
At the end Government’s need money from the taxpayers for the income earned by them in the country where the source of the income has arisen. In this process due the complications, tax structuring, avoidance, evasion etc made the Governments more meticulous in determining the tax liability.
PS: The above article is prepared for the educational purposes and you would be required to contact your tax advisor before acting upon the same. We would not be held liable if you rely upon the same without consulting the tax advisor before implementing the same in your case