Non-Residence: Start And End Dates For Period Of Temporary Non-Residence

The temporary Non-Residence rules distinguish between residence and sole-residence, allowing a taxpayer to rely on treaty residence despite being dual UK resident. The HMRC manual RDRM12640 The SRT provides:

“An individual’s period of temporary non-residence starts from either:

1. the date immediately following the last residence period in which they were solely resident in the UK (referred to as period A)
2. if split year treatment applies to the individual, the date following that on which the last residence period for which they had sole UK residence ends.

The period of temporary non-residence ends on the day before the date of the start of the next residence period for which an individual has sole UK residence.”

Treaty non-residence is defined in RDRM12630

“An individual will be Treaty non-resident at any time if, at that time, they fall to be regarded as resident in a country outside the UK for the purposes of double taxation agreements, having effect at that time.

An individual will be Treaty resident in the UK if, at the time, they fall to be regarded as resident in the UK for the purposes of double taxation arrangements having effect at that time”.

Residence and Sole residence is defined in RDRM12620

“In relation to whether an individual is temporarily non-resident, a residence period is either:

1. a full tax year
2. the overseas part of a split year
3. the UK part of a split year.

Sole residence for a year includes residence when there is no treaty non-residence.

“An individual will have sole UK residence for a residence period consisting of an entire year, if they are resident in the UK for that year, and there is no time in that year when they are Treaty non-resident.”

Sole residence includes, residence for part of a split year when there was no treaty non-residence during that part of a split year.

“An individual will have sole UK residence for a residence period consisting of part of a split year, if the residence period is the UK part of that year, and there is no time in that part of the year when they are Treaty non-resident.”

To consider whether treaty non-residence would apply, consider the Greek-UK DTA

Article IX of the Greek-UK DTA, Double Taxation Relief (Taxes on Income) (Greece) Order 1954 (SI 1954/142),
provides:

(1)     An individual who is a resident of the United Kingdom shall be exempt from Greek tax on profits or remuneration in respect of personal (including professional) services performed within Greece in any year of assessment if

(a)     he is present within Greece for a period or periods not exceeding in the aggregate 183 days during that year, and

(b)     the services are performed for or on behalf of a resident of the United Kingdom, and

(c)     the profits or remuneration are subject to United Kingdom tax.

(2)     An individual who is a resident of Greece shall be exempt from United Kingdom tax on profits or remuneration in respect of personal (including professional) services performed within the United Kingdom in any year of assessment, if

(a)     he is present within the United Kingdom for a period or periods not exceeding in the aggregate 183 days during that year, and

(b)     the services are performed for or on behalf of a resident of Greece, and

(c)     the profits or remuneration are subject to Greek tax.

The DTA relies on the domestic tax rules to determine whether a taxpayer is “resident” in one of the DTA states to begin with

Underlying residence rule in Greece

Greek Taxes on personal income

The general rule considered for the determination of an individual’s tax residence status is one’s physical presence in Greece in any 12-month period.

You’re considered to be a Greek resident and liable to Greek tax if any of the following apply:

• Your permanent home, i.e. family or principal residence, is in Greece.
• You spend over 183 days in Greece during any calendar year.
• You’re employed or carry out paid professional activities in Greece, except when secondary to business activities conducted in another country.
• Your centre of vital economic interest, e.g. investments or business, is in Greece.

It appears that a taxpayer could be resident in Greece for part of a year even if they spent less than 183 days there in a Greek tax period which appears to correspond with the calendar year.

One must complete an income tax return in Greece if their annual income is over €3,000.

Even if you have no taxable income at all, you must file a tax return if you meet any of the following conditions:

• You own a private car, a motorcycle with an engine capacity of more than 500cc, a pleasure boat or an aircraft.
• You own a property (see below).
• You’re a partner in a Greek partnership, limited liability company or joint venture.
• You earn income from the letting of property or land.
• You’re buying or constructing a building.
• You own a swimming pool of over 25m2 (you must declare an income of at least €11,600 for an outdoor pool and at least €17,400 for an indoor pool).

Greece Guide: Income Tax Liability, Who is liable to pay income tax?: Your liability for Greek income tax (justlanded.com)

Taxable period

No taxable years other than the calendar year are permitted

Tax returns

The filing of tax returns of natural persons is effected only electronically (via the Internet).

Husbands and wives (legally married couples) up to the calendar year 2017 (inclusively) were liable to file a joint tax return, but the income of each spouse was taxed separately. However, the taxable income of one spouse from a business that is financially dependent on the other spouse is added to the taxable income of the other spouse. Taxable income of dependent children is added, with certain exceptions, to the parent who declares the higher total income. If the parents declare equal amounts of total income, the income of dependent children is added to the father’s taxable income. If there is no father, the income is added to the mother’s.Nevertheless, by virtue of L.4583/2018 as of 1 January 2018 and onward, spouses may opt to file separate tax returns, following an irrevocable statement that should be submitted to the tax authorities by the end of February of the year following the year end. In the event of separate filings, the provisions related to taxable income of dependent children apply accordingly for the parent who reports the higher income.

For the purposes of the income tax return filing (single or joint), it is mandatory that the taxpayer(s) has obtained a Greek tax registration number.

Non-Greek tax residents are required to file an annual income tax return only with the Greek tax office applicable for foreign residents.

In this respect, they appoint against the Greek tax authorities, on a basis of a proxy document, a Greek tax resident as their representative. Legal entities are not allowed to be appointed as representatives.

The deadline for the submission of the Greek income tax returns for a tax year is set to 30 June of the following year.

Greece – Individual – Tax administration (pwc.com)

Apart from the actual number of days the taxpayer and/or family spends in Greece, the other crucial factor that can be used for the determination of an individual’s tax residence is the centre of one’s ‘vital interests’.

Although the term ‘vital interests’ has not been officially interpreted within the meaning of the Greek ITC, prior provisions (in force until 31 December 2013) as well as the related jurisprudence indicate several different elements that might be taken into account by the Greek Authorities in order to establish the grounds for the determination of the above term:

• Ownership of assets in Greece.
• Citizenship.
• Social security registration, either mandatory or voluntary.
• Children’s schools.
• Country where family resides.
• Country where family usually spends holidays.

Notwithstanding the above, an individual’s tax residence status is also determined on the basis of the provisions of a bilateral Double Tax Treaty (DTT) concluded between the contracting states (i.e. country of origin/home and Greece) where applicable.

In principle, subject to relevant tax treaty provisions, income tax is payable by all individuals earning income in Greece, regardless of citizenship or place of permanent residence. Permanent residents are taxed on their worldwide income in Greece.

Benefits in kind are, in principle, subject to payroll withholding taxes (WHTs). However, as of 1 January 2015 and considering the difficulty in evaluating the taxable basis of such benefits at the time of their granting, no employment withholding is effected thereon. Instead, their value (since such benefits are taxable) is added to the employment income of the beneficiaries and taxed upon the assessment of their personal annual income tax return.

Greek Personal income tax rates

As of 1 January 2013, income tax depends on the source of the income (e.g. employment, rental) and is calculated accordingly.

The tax scale applying to employment income, pensions, and business profits is illustrated below. The top tax rate is 44% above Euro 40,000

from PWC: https://taxsummaries.pwc.com/greece/individual/taxes-on-personal-income

Residence in Greece or another non-UK place may be established and recognised by registration, obtaining a personal tax number and filing tax returns on the basis of being physically resent and spending all or part of a tax period there while having a main residence and centre of vital interests there.

Any period of return to the UK would be considered as a returner, a part-year, rather than as a leaver.

Trustees and beneficiaries of family trusts in common law jurisdictions are from time to time faced with claims by the “heirs” or the spouse of a settlor or beneficiary resident or a citizen of a civil law jurisdiction.

Claims by such heirs or dependents may be made under civil law of succession or separation on the basis that the “settlor” of the common law trust exceeded his or her rights, in that other civil law jurisdiction, to settle or divest him or herself of their property in their lifetime. The trustee may accordingly be presented with a judgment of a court of a civil law jurisdiction either that the property in trust was never lawfully settled on the common law jurisdiction trustee and is treated in the civil law state of situs as belonging (in rem) to the civil law heirs or spouse or that, if settled, it (or its equivalent value) must be refunded (in personam). The aim of this note is to examine how a “clawback” action of a civil law state may play out in a common law jurisdiction and what a common law trustee may do to prepare for such an eventuality. The reported experience of the English and New Zealand trustees is examined.

Trustee personally liable

A claim by a civil law “forced heir” may carry with it additional danger for a trustee. The existence of forced heirship rights in the hands of beneficiaries of deceased estates necessitates that a trustee could be obliged to compensate forced heirs for amounts exceeding the value of the trust assets held. Taking into account distributions to beneficiaries, any investment losses, trustees’ fees and expenses incurred since “settlement” and costs of defending the trust, the trustee may find him or herself personally liable to fund the difference. A trustee facing potential forced heirship problems may therefore be well advised to seek directions from his or her court of forum and suitable indemnities. He or she should not simply yield to all claims without considering the interests of the remaining beneficiaries. Similarly, however, he or she should take care not to waste trust resources defending a strong claim.  

Recognition and Enforcement

A general foreign money judgment of one state is not generally enforceable in another state without an order of the other state. This could be important where a trustee is a multi-national entity or is owned by one such as a bank and where it may therefore be possible to enforce against it or its shareholder or place it under commercial pressure in the (civil law) state where the judgment was obtained, even if the trust property is situated in another (common law) state.  The courts of the common law jurisdiction of the trust, asked to enforce such an order may be amenable to a defence on the grounds that the civil law decision is contrary to the public policy of the common law state. From the common law perspective, the inter vivos (lifetime) gifts of the settlor are not matters subject to laws of succession; even those of the laws of succession of another state. 

The EU

In the Netherlands Supreme Court HR 18 November 1998 (31 756, BNB 1999/35c, 36c, 37c) ruled that the transfer of assets by an individual resident settlor to an irrevocable discretionary trust is a transfer to an unrelated party. Gift tax is therefore payable at the top rate of tax.

Switzerland recognises trusts and accepts that a Swiss resident is free to settle property into a foreign trust, provided it does not infringe the forced heirship rules. The Swiss Parliament approved the ratification of the Hague Convention on the Law Applicable to Trust and on their Recognition on 20 December 2006 and the convention came into effect in Switzerland on 1 July 2007.

In France, the Supplementary Budget 2011 (LFR 900-2011 of 29 July 2011) has introduced a general tax regime aiming at ‘clarifying and putting an end to the existing uncertainty as for the tax treatment of trusts’. Trusts are now taxable on the settlor’s death usually at the top rate of tax especially where there is an element of discretion and distribution is delayed.

Enforcement in England & Wales

Judgments of specified former Dominions may be “recognised” according to the English 1920 legislation; of specified commonwealth and foreign (mainly European) countries by 1933 legislation. Creditors of Commonwealth, European Enforcement Order (EEO) and 2010 EFTA Lugano Convention state judgments may apply to “register” them in England under CPR 74.3. An application to set aside registration may be made under CPR 74.7 including on the ground that the enforcement of the judgment would be contrary to public policy. The statutory or convention rules permit registration of foreign judgements rather than simply their recognition as a debt entitled to enforcement by a new action and provide that the jurisdiction of the foreign court is based on reciprocity rather than comity. The foreign debtor must have submitted to the jurisdiction of the foreign court for its judgment to be enforceable in England.  An appearance in the foreign court to dispute jurisdiction is not regarded in England as submitting to the foreign court’s jurisdiction.

For specified countries, statutes apply which supersede the common law. If the judgment is not covered by a statutory provision or one of the conventions, for example a judgment of the courts of a BRIC, US, Asian or Latin American country, its effect in England is subject to common law rules. The principles of common law may be stated briefly: For a judgment to be entitled to be recognised, it must have been given in a court regarded by English law as competent. In order to be enforceable, it must be final and conclusive upon the merits of the claim, and for a fixed sum of money. 

Enforcement in New Zealand

New Zealand became a colony of Great Britain in 1841. The effect of this was the adoption of English common law and many pieces of English legislation as the law of New Zealand. This system was confirmed by the English Laws Act 1858. Initially therefore the private International law of England was the private international law of New Zealand. New Zealand has ratified few private international law conventions. One example is the 1983 Closer Economic Relations Trade Agreement with Australia in which the two countries agreed to harmonize their laws. New Zealand has a non-reciprocity based regime for the recognition and enforcement of judgements. Common Law rules apply equally to judgements of all countries. The Reciprocal Enforcement of Judgements Act 1934 allows recognition of UK judgements and provides for orders in council to permit the judgments of specific states to be recognised and registered as judgements of the New Zealand High Court. In practice very few such Orders in Council have been made.

At common law, a general money judgment in personam of a foreign Court of competent jurisdiction is regarded as creating a debt owed by the judgment creditor to the judgment debtor, on which an action may be brought in the High Court alternatively the creditor may sue in New Zealand on the same cause of action or both. Where a person is subject to the jurisdiction of a foreign Court, that person has an obligation to comply with an order made by that Court. The original cause of action on which a foreign judgment is based does not merge in the foreign judgment: it is open to a plaintiff who has obtained judgment in a foreign Court to sue on the foreign judgment itself or on the original cause of action.

If a foreign Court has given judgment on a claim for either party, and proceedings are brought in New Zealand on the original cause of action, the judgment may be relied on as the basis for a cause of action estoppel or issue estoppel by the party in whose favour the claim, or a particular issue, was determined.