Double Taxation (Domicile) — Tax Treaties

In many instances the adverse tax consequences of a determination of double domicile have been alleviated by tax treaties between the contending jurisdictions. U.S. estate tax treaties vary. They generally provide that in the event the contracting parties both claim the decedent as a domiciliary for estate tax purposes, a credit will be given against each country’s tax for tax on property situated in the other country. The amount of the credit cannot exceed the portion of the tax imposed by the country granting the credit attributable to such property.

The Internal Revenue Code (the Code) provides for a death tax credit for a citizen or resident of the United States with respect to property situated and taxed in a foreign country. (I.R.C. § 2014.)

If there is a treaty in force with a particular foreign country, the taxpayer may elect the provisions of the treaty or the Code, whichever is more favorable. (S. REP. No. 82-781, at 89-90 (1951); Treas. Reg. § 20.2014-4 (1973).)

The treaties also include “deemed to be situated” clauses. These clauses, varying from treaty to treaty, describe where assets are con¬sidered to be located for purposes of taxation. For example, under a former treaty with the United Kingdom, a corporate bond was deemed to have its situs at the decedent’s domicile, and negotiable instruments were deemed situated where they were physically locat¬ed. (Estate Tax Treaty with the United Kingdom, Apr. 16, 1945, U.S.-United Kingdom, 60 Star. 1391, TI.A.S. No. 1547, superseded by Estate Tax Treaty with the United Kingdom and Northern Ireland, Oct. 19, 1978, 30 U.S.T. 7225, T.I.A.S. No. 9580.)

Under a former estate tax treaty with Canada, corpo¬rate debt was deemed to have its situs at the place of incorporation and negotiable instruments at the residence of the maker. (Estate Tax Treaty with Canada, Feb. 17, 1961, U.S.-Canada, 13 U.S.T. 382, T.I.A.S. No. 4995. See Borne v. United States, 577 E Supp. 115 (N.D. Ind. 1983).

The court held that the U.S.-Canada Estate Tax Treaty only applied to taxes levied by the governments themselves and not those imposed by the countries’ political subdivisions. The court noted, however, that the treaty allows “each respective country to receive a credit from the other country for the entire amount of tax charged by the national government even though that government allowed a credit on its own tax for taxes paid to political subdivisions of the country.” Id. at 117.)

Under California law, domicile is described as that place where one has his permanent home (Barnett, California Inheritance and Gift Taxes, A Summary, 43 Cal. L. Rev. 51 (1959)).

Domicile of Origin is the domicile the law assigns to each person at birth (Restatement [Second] of Conflict of Laws 14 (1971)). The domicile of origin is assigned unless domicile of choice is attained. U.S. jurisdictions generally will not find a domicile abandoned until a new one has been adopted.

In most U.S. jurisdictions, the rule is stated as a rebuttable presumption that the wife’s domicile is the same as her husband’s.
Under IRS Publication 555, Community Property, Revised May 2007, the IRS Publication states:

“You have only one domicile even if you have more than one home. Your domicile is a permanent legal home that you intend to use for an indefinite or unlimited period, and to which, when absent, you intend to return. The question of your domicile is mainly a matter of your intention as indicated by your actions. You must be able to show with facts that you intend a given place or state to be your permanent home. If you move into or out of a community property state during the year, you may or may not have community income.

Factors considered in determining domicile include:
• Where you pay state income tax,
• Where you vote,
• Location of property you own,
• Your citizenship,
• Length of residence, and
• Business and social ties to the community.

Amount of time spent. The amount of time spent in one place does not always explain the difference between home and domicile. A temporary home or residence may continue for months or years while a domicile may be established the first moment you occupy the property. Your intent is the determining factor in proving where you have your domicile.

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