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A while ago, the Ministry of Finance of Russia published the Main Directions of Tax Policy for 2020-2022 (approved by the State Duma of the Federal Assembly of the Russian Federation). The directions, among other things, provide for a significant change in the approach to determining the individual tax residence in the Russian Federation, namely:

  • reduction of the period of stay in the Russian Federation from 183 days to 90 days, entailing the acquisition of the status of a tax resident of the Russian Federation,
  • introduction of a criterion for the center of vital interests.

As soon as potential changes became known, a wary (negative) attitude towards such an initiative developed (and was expressed) in some circles. Subsequently, the Minister of Finance of the Russian Federation A.G. Siluanov gave notice of the possible introduction of a 90-day period (for the purpose of tax residence of the Russian Federation) on a voluntary (initiative) optional basis and of the need to investigate the suitability of introducing the criterion for the center of vital interests.

Nevertheless, it would be nice to try to figure out whether the Finance Ministry’s plan was bad or not?

1. Tax Residence Criteria

Before dwelling on the criteria that determine the tax law institution, it is necessary to formulate a definition (concept) of such an institution. The concept of individual tax residence shall determine how this state (status) can be established (what criteria are needed). A different approach cannot have a meaningful and logical basis, since the concept will be determined by criteria (or the concept will not be formulated at all).

In our opinion, the tax residence concept can be formulated as a relationship between a person and the State, expressed in the preferential use by a person of or his/her primary interest in the use the public goods of a particular State (for example, roads, protection of property rights, law enforcement, etc.) and certain expenses of the relevant State to maintain the existence of such goods, by virtue of which the former finances the activities of the latter by means of universally binding and unrequited payments (tax payment)[1]. The specified relationship is determined on the basis of the criteria laid down in the tax legislation of the respective State.

There is no single approach to the tax residence criteria, but the following most common ones can be identified:

  • habitual abode (Russia, Georgia)
  • domicile / availability of permanent home (France)
  • center of vital interests (Spain)
  • citizenship (USA)

It is worth clarifying that, for example, France and Spain determine the tax residence status by consistent application of several criteria (domicile, place of stay, professional activity, center of economic interests in France; place of stay, center of vital interests in Spain). Georgia provides for a declarative order for self-recognition of tax residence. In the USA, in addition to the criterion of citizenship (residence), a 183-day rule is also envisaged.

Similar to the rules for acquiring tax residence, there are rules for its withdrawal. While the withdrawal from tax residence in the Russian Federation is quite simple, since the 183-day rule for 12 months applies, the situation is different in some countries. For example, in the United States, if a person (non-US citizen or non-resident) spent minimum 31 days (but less than 183 days) in the country throughout a calendar year, then such a person can be recognized as a US tax resident if the total number of days spent over the past 3 years is 183. The number of days spent in the current year, the number of days spent in the previous year, multiplied by a factor of 1/3, and the number of days spent the year before last, multiplied by a factor of 1/6, are taken into account. In other words, the USA believes that the previously defined relationship between the state and the person can be maintained in periods in which the person spends less than 183 days in the country, subject to certain conditions.

Spanish legislation establishes a regulation according to which Spanish citizens claiming a change of tax residence from Spanish to the residence of a foreign state recognized as an offshore jurisdiction[2] do not lose their Spanish tax residence during the year of the relevant claim and the next four years. It seems that this regulation is in line with the global practice of countering international non-taxation of income and capital (in the spirit of the preamble to MLI[3]).

2. Center of Vital Interests

If we turn to the Tax Code of the Russian Federation, we will find a fundamental provision on the economic basis of taxation and on the inadmissibility of arbitrary taxation (clause 3 of Article 3 of the Tax Code of the Russian Federation). This regulating principle shall govern all aspects of taxation, including tax residence rules. Individual tax residence is determined through the criterion laid down in Article 207 of the Tax Code of the Russian Federation, and consists solely of 183 days of stay in the Russian Federation for the next 12 consecutive months.

The economic basis of this approach can be explained by the fact that 183 days are the majority of the calendar year. Consequently, the state considers (if so) that the greatest interests of the person, the greatest consumption of public goods are located in the Russian Federation. But can it be recognized as economically feasible and fair that the status of persons staying in the Russian Federation for 182 days and 183 days (over 12 months) is different? What should one consider in order to identify the economic basis (where is it hidden)?

Many situations can be simulated in which the Russian Federation: (1) will be the habitual abode of a particular person, but the length of stay will be less than 183 days; (2) will not be the habitual abode of a person, but the person will spend a long (substantial) time period in the Russian Federation annually; (3) will not be a place of stay of a person, but will be a place of income, family life; (4) will be a place of stay for more than 183 days, but the stay will be exclusively for tourism; (5) and other options. In all such situations, for the purposes of the Tax Code of the Russian Federation, only that person who spends more than 183 days in the Russian Federation (within 12 months) will be recognized as a resident. For the 183-day criterion, the features of the person’s life do not matter. From our point of view, such a state cannot be recognized as complying with the principle of the economic basis of taxation[4].

In our opinion, features (details) of a person’s life cannot be ignored when determining tax residence. It is these features (details) that define the state which to a great extent (not in absolute terms) ensures (finances) the observance of the living conditions of the person. Having said so, the conditions shall be understood to be not only the ability to be safe and live comfortably in a certain place, but also other numerous activities (interests) of the person. The criterion, which, in our view, can provide a proper definition of tax residence in the modern world (when a citizen of one state can live (climb the ranks, set up a house, etc.) in the territory of another state or even several states) is the center of vital interests, the introduction of which was proposed by the Ministry of Finance of Russia.

The Russian national tax legislation is hardly familiar with the center of vital interests. This category has been not analyzed thoughtfully. At the same time, the criterion under consideration is already in place in the international Russian tax legislation (and not only in Russian one). It was even applied by the Moscow Arbitration Court in a controversial situation (in case No. A40-22306/05 - Manhattan-M Trading House LLC). Most international double taxation treaties (if not all) contain rules for determining the person’s residence (in the case of double residence according to national legislation), including the center of vital interests.

Some interpretation of this criterion is given in the comments on the OECD Model Double Taxation Convention. So, according to paragraph 15 of the commentary to Article 4, the center of vital interests is determined with systemic consideration of:

  • family and social ties,
  • activity,
  • political activity,
  • cultural activity,
  • locations of income-generating activities,
  • location of the person’s property management,
  • etc.

This comment explains with a specific example how to evaluate the center of vital interests: buying a home by a person in State A, if he/she owns a home in State B, in whose territory such a person has always lived and worked and where his/her family has lived and his/her possessions have been located, does not suggest the relocation of the center of vital interests to the territory of State A.

It is obvious that the presented criterion may have the highest level of flexibility, and its application may be determined by the subjective opinion of a particular tax inspector. There is no certainty in the elements of the CVI (which can be in place in the Russian Federation), in how to relate the elements of the center of vital interests to each other, because they can be simultaneously located in several states. It is not clear how to correlate the economic center (the place of receipt of the main income or the storage of capital) with the family center (the place of residence of the family, school of children, etc.).

It seems that it is the definition of the elements of the CVI and their correlation that shall be subjected to formal certainty, which shall be determined by the results of a scientific, speculative, practical study of this issue. And only after an unambiguous correlation of these elements is formed, the introduction of a criterion for the center of vital interests in the Russian Federation can be included on the agenda. However, the possible introduction of such a criterion shall not pursue the achievement of a budgetary interest only.

A rather superficial logical analysis of the possibility of introducing a criterion for the center of vital interests in the Tax Code of the Russian Federation leads to a conversion of the Russian concept of individual tax residence. These changes can be made in a consistent manner only.

3. Judicial Practice

This publication could not have been complete if it had not represented an analysis of some judicial practice of foreign countries regarding the application of the criterion for the center of vital interests. We hasten to add that any opinion of a foreign court is formulated on the basis of the regulations and doctrine of the tax law of the relevant state, therefore, the implementation of such positions in the Russian system of justice can be carried out only after a thorough study of the conditions and reasons for making such decisions and taking into account Russian law. Let’s examine some of the cases.

3.1 Spain

Let’s start with a quite well-known (possibly “thrice-told”) Spanish case, in which one popular singer was charged additional tax amounts, since Spain was recognized as the center of her vital interests[5]. The singer moved to Spain in 2015 and since that year she recognized herself as a tax resident of Spain, and began to pay tax on worldwide income to Spain. According to the tax service, the singer became tax resident in Spain in 2012 (2011), as since 2010 she had engaged in a relationship with one of the players of the FC Barcelona, whom she married and from whom she has 2 children living in Spain. Moreover, since 2011, the singer has regularly visited the country.

The above shows that the Spanish tax authorities took an approach according to which, in certain cases, the center of vital interests can be determined by the place of residence of the next of kin (taking into account their frequent and regular visits, in the absence of another tax residence), regardless of the place of the main personal income.

3.2 France

In another less popular French case, a Belgian citizen was recognized as a tax resident of France on the basis of the criterion for the center of economic interests[6]. Here’s the story. A Belgian citizen together with his wife and two minor children lived in Paris during 1997-1998. He worked there in 2 organizations (as director). At the same time, the person worked in two Belgian organizations. According to the person, no income or dividends from the activities of French companies were received over the indicated period, and he gained income only from the activities of Belgian companies. The tax authorities established the following set of circumstances:

  • French companies are owned by one Belgian holding company to which the person is a member,
  • substantial turnover and profit of French organizations,
  • no other employees were on the payroll of French organizations, therefore, the person acted not only as a director of those companies.

Based on the analysis of the presented circumstances, the French State Council (the superior administrative dispute resolution body) recognized the person as a tax resident of France on the basis of the criterion for the center of economic interests and indicated that the case files did not prove that the person had any other closer personal ties in Belgium.

Thus, when applying the criterion for the center of economic interests, the French State Council used a systematic approach: not only the person’s current income was analyzed, but also his earning capacity, his capital, the place of his personal relationship (family location).

3.3 Canada

In real life (based on judicial practice), there are cases in which the court cannot unambiguously determine the center of person’s vital interests (however, it seems like the court must take into account all aspects necessary for determining tax residence). This happened in one Canadian case (Mr. Davis and Her Majesty the Queen[7]).

Here’s the story. A person of Canadian origin lived, worked, owned a house, had bank accounts, a retirement fund in the United States, and a US Permanent Resident Card (green card) until 2020. In 2009, the person and his girlfriend bought a house in Canada (Nova Scotia). In December 2012, the person quitted working in the USA. In the period from April 09, 2013 through May 06, 2013 the person requested a withdrawal of about $ 700,000 from his retirement fund. When issuing these funds in the period from May 06, 2013 through May 08, 2013, taxes were withheld in accordance with US law. On May 9, 2013, the person left the US and settled in Canada.

Canadian tax authorities came to the conclusion that the person had a Canadian tax resident status, and therefore this income was subject to tax in Canada.

Considering Mr. Davis’s complaint, the Canadian Tax Court (Toronto) established that the person was simultaneously a tax resident in both the United States and Canada. Therefore, the final residency should have been determined on the basis of the provisions of the international double taxation treaty concluded between Canada and the United States. Paragraph 2 of Article 4 of the United States - Canada Income Tax Convention[8] sets forth that tax residence is consistently determined (1) at the place of a permanent home, (2) or at the place of the center of vital interests, (3) or by the habitual abode, (4) by citizenship. Since the person owned houses in both states, the court immediately proceeded to apply the criterion for the center of vital interests.

The court found that the USA was the place where Mr. Davis’s larger assets were concentrated (prior to the date of entering Canada on May 9, 2013): the person continued to own a house, maintain his bank account in the USA, possess a driver’s license and US medical insurance. As for the family of Mr. Davis, it lived in Canada, Alberta region, which was equally away from the houses of Mr. Davis in the USA (Massachusetts) and in Canada (Nova Scotia). Mr. Davis was not married in Canada, and there was no doubt that Mr. Davis had a romantic relationship in Canada. At the same time, the court noted that the person had clearly shown his intention to leave the USA (and this was confirmed by his later behavior). Having assessed all these circumstances, the court was not be able to come to an unambiguous conclusion about the location of the center of vital interests (although the court noted that the scales slightly tipped towards the USA).

In the light of the foregoing, the court was guided by the criterion of habitual abode, on the basis of which Mr. Davis was recognized as a US tax resident.

This case demonstrates the need for an integrated approach in determining tax residence of an individual. Even such a multifaceted criterion as a center of vital interests not always enables us to determine the resident of which particular state a person is (to establish a relationship between a person and the state, which we specified in paragraph 1 of this publication).

In conclusion of this article, we would like to express very briefly the subjective attitude towards the possibility of introducing the criterion for the center of vital interests in the Russian Federation: practical application. Simulate a situation in which you will be the owner of a house located in the Russian Federation, your family (parents, brothers, sisters) will live in the Russian Federation, but you will work and live abroad. Are you sure that in such a situation the tax service of the Russian Federation (or a specific inspector) will not consider you a tax resident of the Russian Federation? Perhaps to solve such a problem, it is enough to introduce the condition that CVI is applied only if a person stays in the Russian Federation for a certain number of days in a year. Or perhaps not.

[1] Other definitions of tax residence can be found, for example: a concept defining  tax jurisdiction in the territory of which   the ultimate tax liability of taxpayer is borne.

[2] The list of jurisdictions is determined by the Royal Spanish Decree 1080/1991 dd 05.07.1991


[4] Some contradictions in the principles of tax legislation in Russia can be found in the article of I.M. Popova “Economic Analysis in Tax Legislation”, published in the magazine Laws of Russia: Experience, Analysis, Practice. 2018. No.12 p. 51-56.

[5] Unfortunately, the text of the court ruling could not be found. Information is obtained from the Internet: ,




Revaz Chitaya,
Lawyer at Baker Tilly