In recent days Colombian pop star Shakira has settled a long running dispute with the Spanish authorities on her tax residence between 2012 and 2014. The singer has paid over 7.5 million euros to bring the case to an end.
The Spanish authorities reportedly argued that Shakira was a Spanish tax resident, following the purchase of a property in Barcelona in 2012 which served as the family home for Shakira and her then partner, Spanish footballer Gerard Pique. Shakira is said to have disagreed with the authorities’ narration of events, underlining that until 2014 she spent significant periods of time outside of Spain while touring, and that Spain was not where she spent the majority of her time.
Most countries do have their own rules for when an individual will be become tax resident, and those can be quite different for residence under immigration rules. Under the Spanish regime an individual could become tax resident in Spain, and will generally pay Spanish tax on their worldwide income, if (i) they spend more than 183 days in a calendar year in the country or (ii) if their base of activities / financial interests is in Spain. Under the second limb, where your family (e.g., spouse and children) are located may become important.
The UK, like Spain, has its own set of rules for when someone will become tax resident and pay UK tax on worldwide income and gains. The detail of those rules is contained in the Statutory Residence Test (SRT) and deals with three different groups of people: those who would automatically be UK Resident; those who would be automatically non-UK Resident; and those who don't fall neatly into either category, and whose 'ties' to the UK need to be examined carefully. Under the SRT, both the time spent in the UK, and the quality of that time, can be relevant to determine tax residence and that can include consideration of whether or not someone has a home in the UK. Moreover, the SRT uses some concepts which are broader in scope than one would think, depending on the category of 'person' that someone falls into under the SRT.
The challenge of living in a never more connected world as ours, is that people can quite easily, albeit unintentionally, become tax resident in another country. Furthermore, there is even scope for someone to become tax resident in more than one country at the same time. Where someone does have 'connections' with more than one country, particularly owing to the ever-increasing role of the Automatic Exchange of Information between tax agencies, tax agencies may find a need to approach individuals for clarification on their tax position. If that happens then there may be a need to pay taxes in two different countries (which can be a significant issue for cashflow), tax filings to be made to different tax agencies and the process of incurring professional costs to get out of (what can become) a very tricky situation undertaken.
The immediate reaction of anyone struggling to understand how a country's tax rules relates to them is to seek advice, and that makes good sense. However, where more than one country is concerned it can be advantageous for advisors with relevant cross-border legal and tax expertise to be involved. Many of the rules regarding tax residency, while intended to be simple, can actually be quite complex and difficult to apply to individual circumstances. It is through the leveraging of specialist knowledge and experience that a solution can quickly be devised for what can appear to be an all-encompassing problem.
This article was first published in Scottish Legal News.