In tax treaties based on the OECD Model Tax Convention, each contracting state details who it claims to be a resident (Article 4, Section 1), then a cascade of criteria ("tie-breaker rules") is given to determine the residency in case both states are claiming the person or company as a resident (Article 4, Section 2).
But what happens if none of them is claiming residency?
As an example, let's take the convention for the avoidance of double taxation between Bahrain and Luxemburg.
- For Bahrain, a resident needs to be a national of Bahrain, who is present at least 183 days per year.
- For Luxemburg, a resident needs to be liable to tax by reason of his residence, place of management, etc.
So what would happen to a national of Luxemburg who moves to Bahrain permanently?
- Bahrain doesn't claim him as a resident because he is not a Bahraini national.
- Luxemburg doesn't claim him as a resident either, because he doesn't have a domicile there any more.
Despite some research into the model convention and its commentaries, I haven't been able to find any explicit reference to that kind of situation.
Common sense would suggest that the same cascade of criteria from Article 4, Section 2 would be used in that case, but I haven't been able to find evidence of this. And since I have no formal education in law, there is a good chance for my "common sense" to be wrong.