Updated on July 18, 2023
The term “habitual abode” specifically refers to the period of time an individual resides or stays in a particular country. It takes into account the regularity and duration of the individual’s presence in each country under consideration. By examining the taxpayer’s habitual abode, tax authorities aim to establish the country with which the individual has the strongest residential connection.
This rule came into force as a tie-breaker rule of the OECD model tax treaty and incorporates various criteria to determine the tax residence of an individual in cases of dual residence.
How is the concept of Habitual Abode applied?
To apply this criterion effectively, tax authorities assess the cumulative time spent by the taxpayer in each country over a given period. They consider factors such as the frequency and continuity of the individual’s presence, as well as the length and purpose of their stays. This analysis helps determine the country where the taxpayer has established a more substantial and enduring residential link.
By using the concept of habitual abode, the tie-breaker rule aims to resolve potential conflicts in dual residence situations. It provides a tangible criterion to ascertain the individual’s primary place of residence and allocate taxing rights accordingly. This helps avoid double taxation and ensures a fair and consistent application of tax rules in cases where an individual’s residence status is ambiguous due to their connections with multiple countries.