Temporary non-UK-resident

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),

(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.

UK Statutory Residence Test

New UK tax residence legislation took effect from 6 April 2013. The new rules use various non-subjective factors to determine UK domestic residence status in the tax years 2013/14 onwards.

There is a summary of the main rules here:


There are tests known as automatic residence tests, sufficient ties tests and automatic overseas tests.

It is not necessary to apply either the automatic UK test or the sufficient UK ties test to an individual who falls within one of the automatic overseas tests because they are definitively non-resident for the tax year.

Also, it is also not necessary to apply the sufficient UK ties test to an individual who falls within one of the four automatic UK tests but meets none of the automatic overseas tests, because they are definitively resident for the tax year.

The tests are set out below in reverse order; Automatic UK, Sufficient ties and then finally the overriding one, Automatic overseas.

Automatic UK

An individual is UK resident for the tax year if none of the automatic overseas tests are met and the individual meets one of the following four (4) automatic UK tests below:

  1.  They spend at least 183 days in the UK in the tax year.
  2.  They have a home in the UK and are present there on at least 30 separate days in the tax year, and in a period of at least 91 consecutive days (part of which falls in the tax year) they either have no home abroad or they have one or more non-UK home(s) in which they are present for less than 31 separate days in the tax year. The days can be consecutive or intermittent for the 30-day count, and there is no time minimum for presence (so that a day is counted if there is one minute of presence in the UK home). If the individual has more than one UK home, each is considered separately for the 30-day and 91-day counts. In terms of the first limb of the test, that the individual has a home in the UK in which they are present on at least 30 separate days in the tax year, a day spent at the home is ignored if it falls in the period 1 March 2020 to 1 June 2020, the individual is present in the UK for ‘an applicable reason related to coronavirus disease’ and is resident in another jurisdiction in that tax year. Note that these days are excluded for the purposes of determining the individual’s residence in the 2019/20 tax year. The days can be excluded in 2020/21 only if the individual was non-resident in the 2019/20 tax year. Therefore, if the individual was UK resident in 2019/20, any days in 2020/21 that would fall into this provision are counted as presence in the UK home.
  3. They work in the UK over a period of at least 365 days (part of which falls in the tax year) in which there are no ‘significant breaks’ from UK work, and more than 75% of the days on which they do more than three hours’ work are days on which more than three hours are worked in the UK, and there is at least one day that falls in the period and in the tax year on which they do three hours’ work in the UK. This is described as full-time UK work (also known as FTWUK). A ‘significant break’ from UK work is a continuous period of at least 31 days during which there is no day on which there is more than 3 hours of UK work, or on which the individual would have done more than 3 hours’ UK work, but for being on annual, sick, parenting leave or emergency volunteering leave6. This means that residence by reason of full-time UK work can be avoided by a period of work abroad, but not by simply taking leave periods outside the UK. Note that in terms of ignoring emergency volunteering leave when determining if there has been a ‘significant break’, this only applies for the purposes of determining the individual’s residence in the 2019/20 tax year. The leave can be similarly ignored in 2020/21 only if the individual was non-resident in the 2019/20 tax year. The work test simply refers to working in the UK over a period of 365 days, which contrasts with the pre-6 April 2013 practice that differentiated between shorter UK work periods and those for two or more years.
  4. They die in the tax year and were UK resident under the automatic residence test in each of the three previous tax years (but the preceding tax year was not a split year), and their home was in the UK when they died, or they had more than one home and at least one of them was in the UK, and if they had a home overseas during all or part of the tax year they did not spend a sufficient amount of time there in the tax year. The individual spent a sufficient amount of time at their overseas home in the tax year if either: there were at least 30 days in the tax year when they were present there for at least some of the time (no matter how short that time), or they were present there for at least some of the time (no matter how short that time) on each day of the tax year up to and including the day on which they died. Note that the 30-day total refers to the aggregate days in the tax year, being either consecutive or intermittent. The reference to the individual’s presence at their home means at a time when it was their home. If the individual had more than one home overseas, each of those homes must be looked at separately to see if the 30-day requirement was met, and that requirement is then met if it is met in relation to each of them.

Sufficient Ties

The sufficient ties test only applies where an individual meets none of the automatic overseas tests and none of the automatic UK tests but they visit the UK and have one or more UK ties.

The test comprises two separate sliding scales that use the UK days and the individual’s UK ties in the tax year. The scale that applies depends on the individual’s UK residence status in the previous three tax years. Note that an additional UK tie (the country tie) applies to an individual who was previously UK resident.

A previously-resident individual (also commonly referred to as a ‘leaver’, but this term is not used in the legislation) can spend up to 15 days in the UK in the tax year without becoming resident, regardless of the number of UK ties that they have.

A previously non-resident individual (also commonly referred to as an ‘arriver’, but this term is not used in the legislation) can spend up to 45 days in the UK in the tax year without becoming resident, regardless of the number of UK ties that they have.

The sliding scale that applies to the tax year depends on the individual’s residence status in the previous three tax years.

the ties are:

  • family
  • accommodation
  • work
  • 90 day and
  • country
 Individual not resident in UK in the three preceding tax years (‘arrivers’) 
 UK daysResidence status/UK ties 
 45 or lessNon-resident 
 45–904 ties = resident 
 91–1203 or more ties = resident 
 More than 1202 or more ties = resident
 Individual UK resident in any of the three preceding tax years (‘leavers’) 
 UK daysResidence status/UK ties 
 15 or lessNon-resident 
 16–454 or more ties = resident 
 45–903 or more ties = resident 
 91–1202 or more ties = resident 
 More than 1201 or more ties = resident

Automatic overseas

There are five automatic overseas tests in FA 2013, Sch 45, Pt 1, paras 11–16 and an individual who meets any one of them is non-resident.

First auto o/s test, resident within 3 years. if you,

1. have been resident in the UK for one or more of the last three (3) UK tax years,

2. spent less than sixteen (16) days in the UK in the tax year, and

3. do not die in the tax year

Second auto o/s test, resident in none of the three previous tax years, the individual was

1. resident in the UK in none of the three previous tax years,

2. present in the UK for a maximum of fourty five (45) days in the tax year

Third auto o/s test, works sufficient hours overseas

  1. the individual works ‘sufficient hours overseas’,
  2. there are no ‘significant breaks’, in the current tax year, and
  3. they are present in the UK in the current tax year for no more than ninety (90) days
  4. of which no more than thirty (30) are days on which more than three hours’ UK work is done). This is described as full-time work overseas (or abroad) (also known as FTWA). Unlike the previous HMRC practice for full-time employment abroad, the legislation does not require the employment contract to cover the required period

 Fourth o/s test, dies in the tax year

  1. the individual dies in the tax year, and
  2. spends no more than fourty five (45) days in the UK in the tax year and either

 (a)     was not resident in either of the two (2) previous tax years, or

 (b)     was non-resident for the preceding tax year and the tax year before that was a split tax year under Cases 1, 2 or 3

Fifth o/s test, dies in the tax year

  1. the individual dies in the tax year,
  2. spends no more than fourty five (45) days in the UK in the tax year and
  3. would meet the third automatic overseas test rules (full-time work abroad) if those rules were applied for the part-year up to their date of death, and either:

 (a)     was not resident in either of the two previous tax year because they met the third automatic overseas test (work abroad), or

 (b)     was non-resident for the preceding tax year because they met the third automatic overseas test (work abroad) and the tax year before that was a split tax year under Case 1

International Trust Jurisdictions and Forced heirship

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.

Some fundamentals of the international tax system

Traditionally, the right to tax (or not tax) subjects has been the sole preserve of the sovereign and its parliament. This worked while most capital and citizens were static although freeports have existed since ancient times.

As an example, Jebel Ali was a free port long before Dubai became a modern tourism and finance centre. It was possible to form a Jebel Ali Freezone company (FZE) subject to a minimum capital requirement. A trader of commodities between Europe and Asia, for example, could buy widgets for $10.00 in Asia, sell them to their Jebel Ali FZE for $20, then deliver them to an agent in Rotterdam for $30. Only half of the sale price was exposed to tax for the contract performed at the port of delivery.

These days, the freedom of states to set their own tax rates has been restricted by pressure from international organizations. The Financial Action Task Force (FATF) was set up in 1989 to counter money laundering. Low or nil tax rates and inadequate supervision were seen as harmful practices akin to attracting the proceeds of crime. The FATF became politicized with perceived rates of wealth inequality increasing.

The rise of international dotcom business, able to trade from anywhere, gave rise to multilateral Base Erosion and Profit Shifting (BEPS) agreements permitting states to tax some transactions that would otherwise escape their domestic tax net. BEPS was known as the Amazon tax because many domestic taxes and double tax agreement rules only applied international transactions when the agreement was made in the state, there was a “dependent” agent in the state or the taxpayer had a physical presence in the state. Amazon and other dot com vendors were often outside the scope of such tax rules. The rule for the place and time of formation of a contract, was where the acceptance of an offer was posted.

The BEPS rules were in the process of being implemented when further multi-lateral agreements entered into by 130 states were entered into in 2021 known as Pillars 1 and 2. Pillar 1 allocates some taxing rights over very large and profitable multinations’, to states where they do business without a physical presence having to be established. Pillar 2 sets a minimum 15% rate of corporation tax.

In the case of individuals, capital became more mobile when exchange controls were lifted in the late 1970s. Individuals found ways to use the special attributes of individual states and territories. Some British Crown dependencies legislated for international business companies (required to trade outside their place of incorporation), with zero corporation tax rates.

Until around the 1990s, the UK had a policy of wishing to attract foreign banking and finance experts to the City and exempted them from UK tax on the income and gains of their assets retained outside the UK. This was the non-Dom rule. In general, before 2017, a individual born outside the UK would not be deemed to be UK domiciled until they had been resident for 17 of the last 20 UK tax years. Residence was assessed according to the number of days spent in the UK in a tax year. In one year, if more than half (183 days) or over 90 days on average over four years, then the UK would claim residence. Also, until 2019, a non-resident was able to buy and sell some UK assets without the gains being subject to UK Capital Gains Tax.

Employment and other active income from the UK and income from a fixed base was taxable in the UK even if it belonged to non-UK resident so, for most people, whether they are resident or not wasn’t, from a tax point of view, very important but; for wealthy mobile people, with passive income such as interest, royalties and dividends, it matters.

Generally, once a person or company is resident in a state, they may be taxable on their worldwide income. The UK exempts foreign passive income of non-doms subject to the ‘remittance basis’ rules. New Zealand and Aus don’t generally offer this exemption but they have a temporary transitional residence status, during which, passive from income is exempt.

Some international business centres such as Singapore and Hong Kong exempt the foreign income of their residents.

The UK updated its residence test in 2013. Tax rules are complex. This newsletter is not intended to be legal or tax advice. Please consult a tax adviser before selling an asset.


G7 Agree on Global Corporation Tax

On 5th June, 2021, the G7 announced an historic agreement on the reform of cross-border taxation of corporate profits.

All tax “law” is domestic law made by the governments, parliaments and sovereigns of particular states. Most cross-border corporate tax rules of individual states are however subject to the international tax treaties entered into by them.

International “law” principles generally require that the domestic tax laws of an individual state are subject to the international treaties or agreements (DTAs) that state enters into with other states. In New Zealand, the UK and other commonwealth states, treaties are embodied in domestic law by regulations made under the Income Tax Act. In New Zealand’s case, this treaty override principle is enforceable under its domestic law because the Income Tax Act 2007 s BH1(4) provides that a DTA has effect “despite anything in this Act”. See Also CIR v ER Squibb & Sons (NZ) Ltd (1992) 6 PRNZ 601 (CA) at 607.

Many DTAs are based on the OECD Model. According to the OECD Model, a company or person “carrying on” business in another state is not enough to trigger a “source” of taxable income in the other state or the other state’s right to tax the “profits” of that business.

DTA’s generally only allow a state to tax an overseas business if the overseas business has a Permanent Establishment (PE) or fixed base in that state.

Article 8(1) of the UK-NZ DTA, for example, includes:

“The profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein.

If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other State but only so much of them as is attributable to that permanent establishment”.

The term Permanent Establishment has a meaning specific to DTAs. The requirement for a fixed base arose from the practice of cross border business in the post World War I era. This “compromise” (requiring a PE in the source state) before the source state has a right to tax the profits of the enterprise, has been the basis of the international tax treaty network since the 1920s.

Craig Elliffe stated in his 2018 International and Cross Border Taxation in New Zealand at 17.3.4,

“A vendor of goods and services can deal with a New Zealand purchaser without any need to perform any of the actions which could give rise to business being carried on in New Zealand”.


Since around the time of the 2009 Global Financial Crash and the rise and dominance of the giant digital businesses such Amazon, Google and Facebook, the OECD has pursued the project concerned with Base Erosion and Profit Shifting as a multilateral Action Plan “designed to deal with aggressive tax planning and tax avoidance” including to prevent “treaty abuse” by permitting a deemed PE to exist and other anti tax avoidance measures.

And “This area of e-commerce and the source rules is likely to be an area of considerable tax tension and change in the next decade”.

Place of Residence

Under principles of international law, companies are considered to be resident (and resident for local tax purposes) in their place of incorporation. Some states, such as the UK, also allow place of management to determine place of residence. When directors on a company permanently live in countries other than the place of incorporation, the place of management is determined according to where the key management decisions are made. See De Beers Consolidated Mines Ltd v Howe, 5 TC 213.

‘A company resides … where its real business is carried on … and the real business is carried on where the central management and control actually abides’.

The De Beers company was incorporated in South African and its main trading operations were there. The controlling board of directors exercised its powers in the UK. The company was held to be resident in the UK.

Many states ignore place of management and tax companies based on their place of incorporation only.


With residence established, if a company earns income in another country it may be subject to tax on part or all of its income twice: by the state in which it is “resident” and possibly by the “source” jurisdiction (the state where the income is earned).

Professor Craig Elliffe’s article, Justifying Source Taxation in the Digital Age (see link below) includes:

Most theories for the justification of tax fall loosely into two major categories. These are the benefit theory and the ability to pay theory. Convention views the benefit theory as supporting source taxation, whilst the ability to pay theory supports residence taxation.

The ability to pay has been linked to the place of residence because generally a company will have one main physical presence similar to its place of incorporation.

Prof Elliffe states regarding ability to pay and residence basis taxation that: The advantage of the ability to pay theory is that it simplifies the relationship to one of compulsion which then enables the state to determine how payments can be made to allocate expenditure, distribute and secure price-level stability and full employment. Furthermore, it positively reinforces the principles of progressive taxation. This principle suggests that taxpayers suffer a burden in proportion to their income which is why it is also sometimes described as the sacrifice theory.

The benefit theory relates to other territories whether the corporation does business where under “a concept of mutual benefit or relationship”, an individual returns “to the community a portion of the economic progress they have derived from the community”.

The benefit theory became “embedded in the current international tax framework”. The so-called 1920s compromise of allocating taxing rights between source and residence countries is an integral part of the rules which form the basis of the modern international tax system and the OECD double tax model.

“Taxing rights are available to the source state only provided that the non-resident enterprise maintained a PE (usually a fixed place of business) in that state through which the enterprise’s business was carried out”.

However, “one of the most significant tax issues of the 21st century has been the ability of highly digitalised businesses to carry out economic activity in the source state without establishing a physical presence or a PE”.

G7 Agreement

The 5th June 2021 G7 announcement stated that the agreement “on global tax reform”..”will mean that the largest multinational tech giants will pay their fair share of tax in countries in which they operate”.

The agreement contains two “pillars”.

Pillar One

The largest and most profitable multinationals will be required to pay tax on their profits of doing business in the countries where they operate. In other words, establishing a PE will not be required.

Conditions applicable to Pillar One are that the firm must

  • be global and very large.
  • have at least a 10% profit margin on its turnover.

Under Pillar One, 20% of the business’s profit on operations in a particular country over 10% would be “reallocated” from the residence to the source state and be taxable in the source state.

This would require amendments to the existing DTA network.

Pillar Two

The G7 agreed that globally and country by country, corporation tax should be at least 15%.

The intention of Pillar Two is for states to cooperate on aligning their corporation tax rates rather than competing with one another to attract tax payers to relocate from one to the other. Competition of this sort has the effect of pushing tax rates down and increasing inequality within individual states.


Service outside the Jurisdiction

A statement of claim or counterclaim in proceedings filed in the High Court (together with the relevant notice of proceeding or third party notice) which cannot be served in New Zealand may be served out of New Zealand without first seeking the leave of the Court in the following cases:

High Court Rules, r 6.27

– where the proceeding is brought in the High Court for the execution of the trusts of any written instrument of which the person to be served is a trustee and which ought to be executed according to the law of New Zealand; r 6.27(2)(f).

– where any person out of New Zealand is a necessary or proper party to a proceeding properly brought against some other person duly served or to be served within New Zealand; r 6.27(2)(h).

The rule permits a person sued in New Zealand to serve a counterclaim on the plaintiff at an address for service in New Zealand and on any necessary or proper parties to the counterclaim as counterclaim defendants outside New Zealand.

Where overseas defendants joined enter a protest to jurisdiction, the plaintiff is required to show a good arguable case that the overseas defendants are “necessary or proper parties”.

A defendant who resides out of the jurisdiction will not be lightly subjected to a local jurisdiction. The burden on the plaintiff is light and lower than the tests for striking out and summary judgment because refusing to exercise jurisdiction might determine the matter.

[28] However, there is no doubt that Jacobsen FT, as one of the Jacobsen group of companies, holding 12 “A” units in the QPAM Trust, will be a party affected by any decisions relating to the trust, or indeed its sole trustee QPAM. If it is not a party to these proceedings, it will not be bound by any decision. Therefore, one important unit holder might remain immune to the outcome of the litigation. If it refused to be bound by any decision in the litigation, there would have to be a further proceeding covering the same ground to obtain the same declaration against Jacobsen FT.

The rules do not permit proceedings commenced by originating application to be served outside New Zealand without the leave of the Court.

HC r 6.27 When service is allowed without leave

(2) An originating document may be served out of New Zealand without leave in the following cases:

(h) when the person out of the jurisdiction is:

(i) a necessary or proper party to proceedings properly brought against another defendant served or to be served (whether within New Zealand or outside New Zealand under any other provision of these rules), and there is a real issue between the plaintiff and that defendant that the court ought to try: or

(ii) a defendant to a claim for contribution or indemnity in respect of a liability enforceable by proceedings in the court.

The plaintiff must have an arguable case which is pursued in good faith against the party served in New Zealand, and also against the person to be served outside New Zealand

A “good arguable case” is more than a serious question to be tried. The constituent elements of the test were stated as follows:

There are two stages in this inquiry. First, is there a serious or substantial legal question to be tried or argued on a particular cause or causes of action? Second, if so, has [the plaintiff] established a credible narrative or plausible factual basis for the legal question? At the second stage the touchstone is satisfaction that the claim is more than merely speculative ([Stone v Newman] at para 24). All relevant evidence and the pleadings are to be considered. If both questions are answered affirmatively, [the plaintiff’s] argument will be sufficiently strong to warrant the New Zealand Court accepting jurisdiction; its case will have a strong foundation. In that event, the Court’s inquiry should cease, and its scope should not widen into disputed questions of fact.

The question is whether, if a person had been within the jurisdiction, that person could have been properly sued together with the other defendant within the jurisdiction.

The High Court Rules,

r 6.27(2) 

(j) when the case “ arises under an enactment” and:

(iv) the enactment expressly confers jurisdiction on the court over persons outside New Zealand (in which case any requirements of the enactment relating to service must be complied with).

In Kuehne + Nagel International AG v Commerce Commission the Court held that, in relation to the first stage of the inquiry under r 6.29(1)(a) if there was a “good arguable case” that a claim fell wholly within r 6.27(2)(j)

6.28 When allowed with leave

(5) The court may grant an application for leave if the applicant establishes that—

(a) the claim has a real and substantial connection with New Zealand; and

(b) there is a serious issue to be tried on the merits; and

(c) New Zealand is the appropriate forum for the trial; and

(d) any other relevant circumstances support an assumption of jurisdiction.

A party served may enter an appearance limited to protesting the court’s jurisdiction. HC r 5.49 6.29 Court’s discretion whether to assume jurisdiction

(1) If service of process has been effected out of New Zealand without leave, and the court’s jurisdiction is protested under rule 5.49, the court must dismiss the proceeding unless the party effecting service establishes—

(a) that there is—

(i) a good arguable case that the claim falls wholly within 1 or more of the paragraphs of rule 6.27; and

(ii) the court should assume jurisdiction by reason of the matters set out in rule 6.28(5)(b) to (d); or

(b) that, had the party applied for leave under rule 6.28,—

(i) leave would have been granted; and (ii) it is in the interests of justice that the failure to apply for leave should be excused.

(2) If service of process has been effected out of New Zealand under rule 6.28, and the court’s jurisdiction is protested under rule 5.49, and it is claimed that leave was wrongly granted under rule 6.28, the court must dismiss the proceeding unless the party effecting service establishes that in the light of the evidence now before the court leave was correctly granted.

(3) When service of process has been validly effected within New Zealand, but New Zealand is not the appropriate forum for trial of the action, the defendant may apply for a stay, or for a dismissal of the proceeding under rule 15.1.

HC r 18.1 Types of proceedings This Part applies to the following types of proceedings:

(a) Equitable jurisdiction proceedings in which the relief claimed is wholly within the equitable jurisdiction of the court, such as—

(v) the giving of directions to persons in their capacity as executors, administrators, trustees, or beneficiaries to do or abstain from doing a particular act:

(ix) the determination of a question that arises in the administration of an estate or trust or whose determination is necessary or desirable to protect the executors, administrators, or trustees:

(b) Determinations by court under statutes proceedings in which the relief is claimed solely under the following enactments:

(xiii) the Trustee Act 1956:

An example of a proceeding solely under an Trustee Act 1956 (enactment) is s. 66 Right of trustee to apply to Court for directions

(1) Any trustee may apply to the Court for directions concerning any property subject to a trust, or respecting the management or administration of any such property, or respecting the exercise of any power of discretion vested in the trustee.

(2) Every such application shall be served upon, and the hearing may be attended by, all persons interested in the application or such of them as the Court thinks expedient.

HC r 18.4 Commencement of proceedings

(1) A proceeding under this Part must be—

(a) commenced by statement of claim; and

(b) [accompanied by an application for directions as to service and representation under rule 18.7.]

(2) The application of this Part to a proceeding does not prevent the commencement of that proceeding by originating application if it is eligible to be so commenced under Part 19, in which event this Part does not apply.

HC r 18.5 Naming of defendants in cases involving deceased estates or trusts (1)This rule applies to a proceeding that—

(a) involves a deceased estate or a trust; and

(b) is not commenced by the personal representative of the deceased person or the trustee of the trust.

(2) The only defendant that may be named in the statement of claim is the personal representative or the trustee.

If an application for directors was made under the Trustee Act 1956 section 66, this would be made by the trustee so the above HC rule 18.5 would not apply

HC r 19.5

(1) The court may, in the interests of justice, permit any proceeding not mentioned in rules 19.2 to 19.4 to be commenced by originating application. (2) The court’s permission may be sought without notice.

In summary, it appears that, in general, a New Zealand Court will permit matters concerning trusts made under New Zealand law to be commenced in New Zealand and they may be served on defendants outside the jurisdiction without first having obtained the leave of the court. The court will not entertain an action which involves the question of title to, or the right to possession of, foreign immovables. The courts apply the law of New Zealand to determine whether domestic law or that of a foreign jurisdiction is applicable.

The law of New Zealand, in general, incorporates the doctrine of renvoi, meaning that where foreign courts have refused jurisdiction the courts of New Zealand will, in certain circumstances, accept a reference back. This rule (that the New Zealand court will not entertain questions concerning the above rights to foreign immovable) includes two exceptions:

I. the Court has jurisdiction in personam in cases involving foreign immovables against people subject to its jurisdiction when there exists between the parties a personal obligation or equity arising out of contract, or trust, or from fraud or other unconscionable conduct. Parker J in Deschamps v Miller explained this class of exceptions thus : . . . they all depend on the existence between the parties to the suit of some personal obligation arising out of contract or implied contract, fiduciary relationship or fraud, or other conduct which, in the view of a Court of Equity in this country, would be unconscionable, and do not depend for their existence on the law of the locus of the immovable property.

Requirements for enforcement of Foreign Judgements in New Zealand

A judgment in personam of a foreign Court will be enforced in New Zealand if all of the following three conditions are satisfied:

I. if the foreign Court’s jurisdiction over the judgment debtor is recognised by New Zealand law.

a. if the judgment debtor was a body corporate and resident in the country at the time proceedings were instituted, and if the debtor was an individual if he or she were present in the country at that time.

b. if the judgment debtor was the plaintiff, or counterclaimed in the proceedings in the foreign Court thereby submitting to the jurisdiction ;

c. if the judgment debtor submitted to the jurisdiction of the foreign Court by voluntarily appearing in the proceedings

d. if the judgment debtor had agreed before the commencement of the proceedings to submit to the jurisdiction of that Court, or of the Courts of that country, in respect of the subject-matter of the proceedings. Such agreement may be by letter, subsequent to the dispute arising and may be oral

II. if the judgment is for a debt or a definite sum of money. A foreign judgement must not have left any discretionary element in its order but must not be for a sum payable in respect of taxes, or other charges of that nature, or in respect of a fine or other penalty ;

III. if the judgment is final and conclusive. The foreign Court need not be a superior Court.

At common law, a foreign Court will not be treated as having jurisdiction only on the ground of the judgment debtors nationality; or is domiciled; or possession of property in the foreign country; or resident in the foreign country at the time the cause of action arose as opposed to present; or would under New Zealand law be subject to New Zealand jurisdiction in corresponding circumstances; or was personally served outside the foreign country with the process of the foreign Court in accordance with the law of that country. What amounts to presence within the jurisdiction is physical presence in a literal sense. For an individual residence is not necessary. For a corporation the test appears to be whether the corporation was active in the country of the court rendering judgement and in the case of a commercial enterprise whether it was doing business in that country. It is not enough in the case of a corporation that some individual with an official role or office in the corporation was present in the country. As an aside, a new Zealand court will provide international assistance to overseas courts under Section 192 of the Evidence Act 2006. Evidence may be taken in New Zealand for the purpose of a foreign court for the purpose of civil or criminal proceedings in a foreign court. If a foreign Court had jurisdiction to give judgment against the judgment debtor according to the relevant New Zealand conflict of laws rules, it appears that the judgment will not be unenforceable in New Zealand by reason only that the foreign Court lacked jurisdiction under the law of its own country.

Recognition of judgements in Rem

A judgment in rem of a foreign court will be recognised or enforced in New Zealand only if both of the following criteria are satisfied:

I. the judgment must be final and conclusive;

II. A foreign court will be treated as having had jurisdiction to grant the judgment in rem if the subject-matter of the proceedings in which the judgment was given was movable or immovable property situated in the country of the foreign Court at the time of the proceedings.

The recognition or enforcement of the foreign judgment may be opposed on the grounds that:

a. The judgement was obtained by fraud. Or

b. The Judgement was contrary to public policy. It is not contrary to public policy to enforce a judgment merely because the cause of action on which it was obtained is not known to New Zealand law nor because exemplary damages have been awarded in circumstances in which they would not be available under New Zealand law. 

c. The proceedings were contrary to natural justice. Objection taken by the defendant to proceedings in New Zealand was or could have been taken in the foreign country must be taken into account in determining whether there has been a substantial injustice, but is not of itself decisive. Or

d. The matter is res judicata or there is an issue estoppel. A foreign judgment will not be recognised if is irreconcilable with an earlier New Zealand judgment between the same parties.