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COVID-19 and tax residency

  • Greg Limb, Partner |

My recent blog “Quarantines might impact tax residency”, put forward four considerations that globally mobile individuals and families might want to consider in relation to their tax residency position while under quarantine. These focused on amending plans where possible, researching the specific domestic legislation of the country in which they are quarantined and specifically any temporary relief measures introduced, and ensuring that they are collecting sufficient evidence to support their position.

In early April 2020, the OECD released their guidance (PDF 327 KB) on how certain issues dealt with under the model OECD tax treaty will be affected by COVID-19, including how those who qualify as tax resident in more than one jurisdiction would be taxed under the model treaty. As noted in my last blog, an individual’s residence position in each country is determined by the domestic law of each jurisdiction and where an individual is resident in more than one jurisdiction, the taxing rights over their income is often decided by the tax treaty in place between the two countries in which they are resident. Many of these treaties are based on the OECD’s model and therefore the OECD’s commentary will be of interest to many who may find themselves in this position as a result of the pandemic.

While each person will need to consider their own position personally, with specific reference to the tax treaty between the countries in which they are resident (as they are not all exactly the same as the OECD model), the commentary will bring a level of comfort to many. The findings were broadly that any disruption to residence patterns as a result of the virus are unlikely to change where an individual is taxed.

The OECD commentary works through two scenarios to show why they consider that under the model OECD treaty the taxing rights during the pandemic will not change. Readers of the commentary will note that while this is the case, there are some areas in which there is more uncertainty than others, reinforcing the need for individuals to research the specific legislation that will apply to them and their residence pattern.

In addition it is worth noting that the model OECD treaty is indeed just that, a model. The specifics of each tax treaty may differ from the model and due to certain amendments to the model between certain countries, there are some quirky outcomes in the legislation that the OECD model does not anticipate. Furthermore, not all countries will have double tax treaties in place and therefore some individuals will not be able to assess their position with reference to a tax treaty.

While the guidance is welcome in these uncertain times, individuals and families should continue to consider their plans in light of specific legislation and gather evidence of their residence position to ensure they are clear on their tax residence position and globally compliant.

We at KPMG Private Enterprise understand the potential consequences of the current global health situation for family offices, business families, and entrepreneurs. I encourage you to follow our regular series of blog posts to stay informed about how COVID-19 may affect your family office strategies and operations. Please reach out at any time to the KPMG Private Enterprise and Family Office and Private Client advisers in your country or territory for their guidance.

Please visit the KPMG website for our business overview and action checklist titled “Understanding the Implications of COVID-19 for private companies” (PDF 382 KB).

For an overview of tax developments that are being reported globally by KPMG member firms in response to COVID-19, visit Jurisdictional tax measures and government reliefs in response to COVID-19.