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.

  1. For Bahrain, a resident needs to be a national of Bahrain, who is present at least 183 days per year.
  2. 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.

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    Why do you think that anything should happen? The treaty you cite is to prevent double taxation, not non-taxation. If a country like Bahrain chooses not to tax its non-citizen residents then that’s its affair — there’s no global minimum income tax.
    – Mike Scott
    Jul 21 '21 at 7:17
  • Because in some instances, determining tax residency is a legal requirement. An example would be opening a bank account in a country where CRS reporting is mandatory. Jul 21 '21 at 13:40
  • the bank determination of reidency (for KYC) has no relationship at all to whether/where you pay tax. you're worrying about nothing.
    – Fattie
    Jul 21 '21 at 20:15
  • I'm fairly confident that it is doable, and probably done on a daily basis, otherwise tens of millions of people would be stuck in a regulatory limbo. I'm just curious to know how the decision is made, and if there is a general rule because I'm surprised I didn't see it mentioned anywhere. Especially when the opposite case (potential residency in both) is the subject of a very detailed rule. Jul 23 '21 at 19:21
  • If you search through the CRS implementation handbook, you'll see that it is very much about tax residency. It is mentioned explicitly 27 times. Actually an entire portion of the AEOI portal is dedicated to these tax residency rules (oecd.org/tax/automatic-exchange/…). Jul 23 '21 at 19:26

Technically it is possible to not be resident of any place for tax purposes.

For example, Britain and Canada did not consider you resident for tax purposes if you were outside the country for more than half the tax year in a year where you changed residence. Because they have different tax years it was possible to time your move to not be tax resident in either for a year.

In that case both countries treat you as not resident. You may still have to file tax returns for one or both countries if you earned money in them, but you are genuinely treated as not resident and may be able to avoid a lot of tax.

  • FYI that doesn't work, but, note that OP appears to "actually" be asking: "which country to I put on a form when I am opeining an " ' off shore! ' " bank account?"
    – Fattie
    Jul 21 '21 at 20:16
  • What do you mean by "that doesn't work"? Also the question seems to be about tax, which is what my answer is about. Jul 21 '21 at 20:24
  • @Fattie Or simply a bank account in the country where the person would be working and living, if it doesn't recognize him/her as tax resident according to its own definition. It doesn't have to be "offshore" to be a real question. Jul 23 '21 at 19:05

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