A tax residency certificate is not sufficient to secure your tax residency

I. Summary

It is a common misconception that obtaining a tax residency certificate from a new country of residence automatically grants tax non-resident status in the previous country of residence. However, this assumption is incorrect.

In this article, we discuss a recent case decided by the Spanish Supreme Court involving a renowned football player. While the case pertains to Spanish taxation, its reasoning is based on international tax principles and may be relevant in other jurisdictions as well.

The ruling underscores the importance of seeking expert tax advice when determining an individual’s tax residency, particularly when planning a relocation.

II. Background

On July 8, 2024, the Spanish Supreme Court issued Decision No. 1214/2024 (“the Judgment”). For privacy reasons, the court redacted the identity of the football player involved. This article reflects only the facts stated in the Judgment.

The case concerns Spanish personal income tax for the year 2014. The relevant facts are as follows:

In 2013, the player was under contract with Chelsea Football Club in the United Kingdom (UK) but was loaned to Valencia Football Club (Spain) from July 2013 to June 2014.
In July 2014, he returned to Chelsea before being loaned again to VfB Stuttgart (Germany) in August 2014, where he played until 2015.
The Spanish tax authorities determined that in 2014, the player stayed 172 days in Spain, 30 days in the UK, and 131 days in Germany. The remaining 32 days were unaccounted for.
The player’s earnings in Spain amounted to €1,778,771, while his earnings in the UK and Germany combined were €1,724,237.
The player owned real estate in Spain valued at €360,000, two cars worth approximately €55,000, and rented an apartment in Valencia from late 2013 to May 22, 2014.
His father and sister resided in Spain.
In the UK, the player had tax resident but non-domiciled status (“non-dom”), meaning he was taxed on a remittance basis and did not remit foreign income into the UK.
The player paid taxes as a non-resident in Spain and Germany.
The player held Spanish nationality.

The player submitted a UK tax residency certificate under the Spain-UK double tax treaty (DTT) and claimed tax residency in the UK while asserting non-residency in Spain. However, the Spanish tax authorities argued that his main center of economic interests was in Spain.

III. Applicable Law

Under Spanish tax law (Article 9 of the Personal Income Tax Law), an individual is considered a tax resident in Spain if they:

Stay in Spain for more than 183 days in a calendar year; or
Have their main center of economic interests in Spain, directly or indirectly.

The Spain-UK DTT defines tax residency based on domestic laws. If an individual qualifies as a tax resident in both Spain and the UK, the treaty provides tie-breaker rules:

Residency is assigned to the state where the individual has a permanent home available.
If a home is available in both states, residency is determined by the individual’s center of vital interests.
If vital interests are unclear, the state of habitual abode is considered.
If none of the above apply, nationality is the deciding factor.
If still unresolved, the tax authorities must reach a mutual agreement.

IV. Supreme Court’s Decision

The Supreme Court ruled that the player was tax resident in Spain for 2014, upholding the Spanish tax authorities’ decision.

Since the player did not stay more than 183 days in Spain, the court focused on his center of economic interests.
While the salary received from Stuttgart exceeded that from Valencia, his overall income and assets in Spain outweighed those in Germany and the UK.
The court also considered the location of his real estate, bank deposits, and family ties in Spain.
The court acknowledged the UK tax residency certificate but did not address whether Spain could disregard it due to the player’s non-dom status.
Applying the Spain-UK DTT tie-breaker rules, the court found the player’s center of vital interests was in Spain.

As a result, the player was liable for Spanish personal income tax and wealth tax on a worldwide basis.

V. Key Takeaways

The Judgment reinforces several important lessons:

Staying under 183 days does not guarantee non-residency: A person can still be considered tax resident based on economic ties.
All income and assets must be considered: The location of earnings, real estate, and investments can influence residency status.
Tax residency certificates are not infallible: A certificate from one country does not automatically preclude residency claims from another.

Given the rise of remote work and digital nomadism, more individuals face tax residency conflicts. Each country’s domestic tax laws and double tax treaties must be carefully analyzed to avoid dual taxation.

A crucial unresolved issue is whether tax authorities can disregard residency certificates issued by countries where individuals are subject to limited taxation (e.g., UK non-doms, Portugal NHRs, or residents in territorial tax systems). The OECD Model Tax Convention suggests that such individuals can still be considered tax residents under tax treaties, but this remains a debated issue globally.