Centre of Vital Interests

[Revoltec]

Hello guys!

If your country had 'centre of vital interests' as on of the requirements for being a tax resident in the country and you wanted to leave this country's tax net, would you be comfortable doing so if there was no clarification on what this exactly means and without it ever been tested in court? Are these ambiguous laws written like that on purpose? It seems like they can use this term in almost any way.

Yes, I have consulted local tax consultants and lawyers and they give me different answers and said it has never been tested in court yet.

 

[belarus]

What country is it ?

 

[Revoltec]

belarus said:
What country is it ?
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Serbia

 

[daniels27]

Revoltec said:
Hello guys!

If your country had 'centre of vital interests' as on of the requirements for being a tax resident in the country and you wanted to leave this country's tax net, would you be comfortable doing so if there was no clarification on what this exactly means and without it ever been tested in court? Are these ambiguous laws written like that on purpose? It seems like they can use this term in almost any way.

Yes, I have consulted local tax consultants and lawyers and they give me different answers and said it has never been tested in court yet.
Click to expand...

Yes, I would be comfortable. It mainly depends on where your family resides and then where you are part of any social, cultural, political organisations.

The laws are not ambigious but of course, there are cases where there is not a firm answer. But if you have a family in any country, that is normally where the centre is. Unless of course, you never see them and are very active politically in another country.

I would say that in the most cases or traditional families, the case is more than crystal clear. If you are single, things are different. Then it depends on your parent's family, ties to them etc. But even then, if you are single and have a big family in Serbia but never meet them in Serbia, your centre most likely won't be there.

 

[Revoltec]

daniels27 said:
Yes, I would be comfortable. It mainly depends on where your family resides and then where you are part of any social, cultural, political organisations.

The laws are not ambigious but of course, there are cases where there is not a firm answer. But if you have a family in any country, that is normally where the centre is. Unless of course, you never see them and are very active politically in another country.
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As I have understood, this is the definition that should be used for tax treaties and is provided by the OECD. However, if the law is domestic, it doesn't need to follow the OECD guidelines.

In case of tax evasion in Serbia, a prison sentence up to 10 years is possible.

 

[daniels27]

Revoltec said:
As I have understood, this is the definition that should be used for tax treaties and is provided by the OECD. However, if the law is domestic, it doesn't need to follow the OECD guidelines.
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The definitions come from Article 4 of the United Nations (UN) Model Double Taxation Convention. This is like the template for most recent DTAs. No DTA must follow the UN model, most took over the article directly from the model, while other's made changes. There normally are no domestic laws with that. Some countries have laws containing similar notions, but that's entirely different matter.

Revoltec said:
In case of tax evasion in Serbia, a prison sentence up to 10 years is possible.
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I think in almost all countries.

Could you maybe elaborate what you are trying to do and what the circumstances are? Leaving a country may lead to many other issues as well, like exit tax on personal level, exit tax on a company level if you had one, etc. I would recommend to first plan it.

If you are leaving Serbia, it also depends on where you are going and if you can take advantage of any DTA (which is better for you).

But if you leave Serbia to travel a bit, have been born there, have kids there, I am almost certain that your plan won't work. You would at least need a new girlfriend and a common apartment in another country.

 

[Revoltec]

daniels27 said:
The definitions come from Article 4 of the United Nations (UN) Model Double Taxation Convention. This is like the template for most recent DTAs. No DTA must follow the UN model, most took over the article directly from the model, while other's made changes. There normally are no domestic laws with that. Some countries have laws containing similar notions, but that's entirely different matter.


I think in almost all countries.

Could you maybe elaborate what you are trying to do and what the circumstances are? Leaving a country may lead to many other issues as well, like exit tax on personal level, exit tax on a company level if you had one, etc. I would recommend to first plan it.

If you are leaving Serbia, it also depends on where you are going and if you can take advantage of any DTA (which is better for you).

But if you leave Serbia to travel a bit, have been born there, have kids there, I am almost certain that your plan won't work. You would at least need a new girlfriend and a common apartment in another country.
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Just to clarify, the 'centre of vital interests' is written in the domestic tax law of Serbia, without any guidance or clarification of what it means.

I was born there and lived there for a limited period of time, probably not enough to be considered tax resident. However, I was registered since birth on a permanent address that I didn't know about and removed it this year. No family as wife and kids but I got parents (only formally registered) and grandparents (actually live there) and I guess no other connections than passport and some empty bank accounts. There is no exit tax. Will probably move to Germany where there is a DTA. However, there is not even a definition of what is considered to be a 'permanent home' by Serbia domestic legislation or guidelines, and this would be applied in case of a DTA. It would be a matter of interpretation, as always.

Last edited: Sep 16, 2024

 

[Nomado]

Parents and grand parents don't count.

Defining center of vital interests is important because it might make you tax resident in a country even if you don't spent time there.

Center of vital interests : businesses in that country, a personal address in that country, close family (wife & kids) living there...and to an extend real estate ownership, specially if it generates some income, in that case you might have to prove to the tax man that you have a bigger center of vital interests in another country.

 

[daniels27]

Revoltec said:
Just to clarify, the 'centre of vital interests' is written in the domestic tax law of Serbia, without any guidance or clarification of what it means.

I was born there and lived there for a limited period of time, probably not enough to be considered tax resident. However, I was registered since birth on a permanent address that I didn't know about and removed it this year. No family as wife and kids but I got parents (only formally registered) and grandparents (actually live there) and I guess no other connections than passport and some empty bank accounts. There is no exit tax. Will probably move to Germany where there is a DTA. However, there is not even a definition of what is considered to be a 'permanent home' by Serbia domestic legislation or guidelines, and this would be applied in case of a DTA. It would be a matter of interpretation, as always.
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Yes. it is a matter of interpretation. But in your case, it should not be too much of an issue. The law is mainly aimed at families whose father lives across the river in Romania and is benefitting from very low tax there, while of course inofficially living with the kids and the mother in Serbia all evenings. Are your parents registered in another country?

Nomado said:
Parents and grand parents don't count.
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Depends on the age. If you are 18, they probably count too. If you are 65 and taking care of your parents, they would also count.

 

[Revoltec]

daniels27 said:
Are your parents registered in another country?
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Yes, both parents, me and my sister have been registered in another country and tax residents of that country. I became a non-resident of that country this year. There will be a hole of one year where I was not registered anywhere but tax resident in a third country.

 

[daniels27]

Revoltec said:
Yes, both parents, me and my sister have been registered in another country and tax residents of that country. I became a non-resident of that country this year. There will be a hole of one year where I was not registered anywhere but tax resident in a third country.
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If you paid tax somewhere, you are usually good (unless it is a low tax country with reputation). But in this case, there is not much that can be seen as centre of vital interests. Not sure if you are member of any association or clubs in Serbia, but I guess not in that case.

 

[Revoltec]

I spent some time reading previous cases in Sweden. Although Serbia should be much less strict in that sense, in Sweden even citizenship, parents and kids over the age of 18 and unmarried cohabitant / ex wife were also included in the overall evaluation, although not decisive. One interesting point is that the court never came to the conclusion that the 'center of vital interests' couldn't be decided between 2 countries. This is something that is written in the OECD model treaty and should be the possibility, however not in practice it seems.

I managed to get in touch with some inspectors at the tax agency of Serbia. They confessed to me that they do not even have the guidelines for how to decide 'centre of vital interests' and that they exclusively base their decision on other factors when you ask for a tax Residency certificate. Quite crazy how law and practice can differ.

When it comes to benefiting from the tax treaty, it seems like you are highly dependent on what your home country's court or tax agency decides.

 

[daniels27]

Thank you very much for the update. But to be honest in most cases, it is crystal clear, where a person belongs to. Of course, there are people with no one wife or girlfriend. It then becomes more difficult. Either you have two or more wives in different countries, then it may really be the case, that the two countries would have to negotiate as mentioned in the model treaty. If you have no wife or girlfriend, they simply look where you grew up, where your parents, brother, kids are, where you are a member of social clubs, where you own real estate, where you have keys to real estate. And trust me, more often than not, it is very simple. And that's exactly when the court comes into play.

If it is a case like you and Serbia where there is literally nothing other than a registration, the case will never make its way to court. The government simply has no interest in your case as it is hopeless. Your closest family members are your parents and they are not there, you never really lived there for ages. How can they claim anything? These laws are really made for obvious cases where you live there and then just leave your wife behind with the kids and "move" to Isle of Man, but your apartment there is a shithole and you have nothing other than a lousy pair of trousers while your mansion in London is stunning and you are seen at every occasion flirting with the princess on instagram. Or like the Boris Becker case in Germany, he moved to Monaco but had a key to his house, which officially was owned by her sister, but he had all his stuff there. That's exactly when they come into play. Your case? No, you will not get sued nor go to jail.

 

[Revoltec]

daniels27 said:
Thank you very much for the update. But to be honest in most cases, it is crystal clear, where a person belongs to. Of course, there are people with no one wife or girlfriend. It then becomes more difficult. Either you have two or more wives in different countries, then it may really be the case, that the two countries would have to negotiate as mentioned in the model treaty. If you have no wife or girlfriend, they simply look where you grew up, where your parents, brother, kids are, where you are a member of social clubs, where you own real estate, where you have keys to real estate. And trust me, more often than not, it is very simple. And that's exactly when the court comes into play.

If it is a case like you and Serbia where there is literally nothing other than a registration, the case will never make its way to court. The government simply has no interest in your case as it is hopeless. Your closest family members are your parents and they are not there, you never really lived there for ages. How can they claim anything? These laws are really made for obvious cases where you live there and then just leave your wife behind with the kids and "move" to Isle of Man, but your apartment there is a shithole and you have nothing other than a lousy pair of trousers while your mansion in London is stunning and you are seen at every occasion flirting with the princess on instagram. Or like the Boris Becker case in Germany, he moved to Monaco but had a key to his house, which officially was owned by her sister, but he had all his stuff there. That's exactly when they come into play. Your case? No, you will not get sued nor go to jail.
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Isn't registration from a gov standpoint a very strong proof?

The 2 countries only need to negotiatiate in case that this is the last point in the tax treaty, usually after the citizenship point. However, for the center of vital interests, the domestic court tries to decide the case by itself and doesnt need to agree with what the other state decides.

 

[daniels27]

Revoltec said:
Isn't registration from a gov standpoint a very strong proof?
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If you are registered you are most likely subject to taxation on your world-wide income except where there is a treaty. This is how it is handled in most European countries.

Revoltec said:
The 2 countries only need to negotiatiate in case that this is the last point in the tax treaty, usually after the citizenship point. However, for the center of vital interests, the domestic court tries to decide the case by itself and doesnt need to agree with what the other state decides.
Click to expand...

Yes, exactly. But look I gave you my opinion based on my experience. After all it is Serbia and you have never been there for ages. If you are worried, you can ask a lawyer, apply for a private letter ruling or you can file a tax return in Serbia outlining your situation. This will all give you a more binding answer. Would I worry in your case? No, I would not. But ultimately, it is up to you if you think a country with no connections will try to tax you. I am still not convinced on what base they would try to do so, given you spent more time elsewhere. I also do not know what you are worried about, maybe, there is a big business with only clients from Serbia that you have not told me about? Then, yes you can worry. But if you have no personal nor economic ties, I do not see a case here.

 

[Revoltec]

I am worried about that they would say that my parents and sister live there (although they do not, only registered) and that I have the citizenship and I am not based anywhere else but just spending more time in other countries (I do not have a registration in the country I am currently)

 

[daniels27]

Revoltec said:
I am worried about that they would say that my parents and sister live there (although they do not, only registered) and that I have the citizenship and I am not based anywhere else but just spending more time in other countries (I do not have a registration in the country I am currently)
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Yes, I understand. But have you ever filed a tax return there? Have they ever contacted you in all those years by mail about your taxes? I guess not. Honestly, I do not think that they suddenly want taxes if they never wanted any and you never paid any. If you paid a lot of taxes there and suddenly none, that's the typical case that then goes to court. But that's not you from what you have told us so far.

 

[Revoltec]

daniels27 said:
If you are worried, you can ask a lawyer, apply for a private letter ruling or you can file a tax return in Serbia outlining your situation. This will all give you a more binding answer.
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I agree this is good advice. I'm still talking to lawyers about this but in praxis this has not been tested so very hard to rely on that information.

So this is where it gets weird. I got in touch with inspectors and they say they only look at registered address when they decide who is a tax resident. So they themselves are not completely following the law. They confessed they do not have guidelines for this "center of vital interest" thing. In practice, it hasn't been applied yet. But if it does get implemented, I am the one to take the punishment anyways. Without a registered address, I cannot even apply for tax treaty benefits, as they think I am a non-resident automatically without looking at the question more deeply stupi#21

I have sent a letter to the Ministry of Finance to get a "professional opinion" but they are not legally binding. I have not seen any option to a pre-ruling.

daniels27 said:
Yes, I understand. But have you ever filed a tax return there? Have they ever contacted you in all those years by mail about your taxes? I guess not. Honestly, I do not think that they suddenly want taxes if they never wanted any and you never paid any. If you paid a lot of taxes there and suddenly none, that's the typical case that then goes to court. But that's not you from what you have told us so far.
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For 2021 I was in touch with them. Long story short, it got too complicated and I stopped responding to their requests. I have never paid taxes though.

I just hear about all these people that end up with a lot of wealth that they need to hide and stuff as source of funds and previously paid tax gets more and more complicated. I'm trying to do everything 100% clean and correct from the start but it seems hard. Im now considering to just move to Serbia and pay the tax 😕

 

[daniels27]

Revoltec said:
I agree this is good advice. I'm still talking to lawyers about this but in praxis this has not been tested so very hard to rely on that information.

So this is where it gets weird. I got in touch with inspectors and they say they only look at registered address when they decide who is a tax resident. So they themselves are not completely following the law. They confessed they do not have guidelines for this "center of vital interest" thing. In practice, it hasn't been applied yet. But if it does get implemented, I am the one to take the punishment anyways. Without a registered address, I cannot even apply for tax treaty benefits, as they think I am a non-resident automatically without looking at the question more deeply stupi#21
Click to expand...

Yes, exactly. They won't care if you are not registered. Unless you drive around town in Serbia with Ferraris and the like and buy tons of houses in Belgrad. If you have never been there and are no longer registered, they won't do anything to you. Unless of course, you spend time there and the catch you. If you are not going there "just for the weekend" do you think they will do what?

Revoltec said:
I just hear about all these people that end up with a lot of wealth that they need to hide and stuff as source of funds and previously paid tax gets more and more complicated. I'm trying to do everything 100% clean and correct from the start but it seems hard. Im now considering to just move to Serbia and pay the tax 😕
Click to expand...

Look, I am not sure if I already told you but those stories do not come up just like this. There are people who live in Germany, Spain, UK, etc. and they try the hell to avoid taxes in their homecountry where they grew up. You can look at those guys here:
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If you are in their shoes, that is exactly when they will use these laws against you. It is like

Zl1dmitry said:
Here is my family, childs school, flat, and also some real estate buisness.
In general rather good exept taxes)
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If you are in this situation and then move to neighbouring Andorra or claim to be resident of Monaco, but never have been seen there, then they will pull the stories out.

Let me be honest with you. You are either hiding part of the truth or you are worried for nothing.

 

[peter taradash]

If you use the five flags (in my PT book) & move (before six months go by in most jurisdictions), physically or just on paper (keeping a low profile) so that you are a tax resident nowhere, this kind of Perpetual Tourist invisibility still works . . .It took me 3 volumes (Bye Bye Big Brother) to explain all the ins and outs, but the one sentence above is a summary. Or you can really live in a tax haven like Bermuda, Bahamas, Monaco or Campione.
If you flaunt your wealth, the local tax authorities might apply these tests to declare
you to be a tax resident with that country as your center of vital interests:
1) Where do you live physically most of the time?
2) Where do your wife & kids live & go to school?
3) Where are most of your assets parked?- if mostly in that country they can find you to be a tax resident.
4) Where is your car registered /
5) Where do you vote?
6) Do you have any professional or other licenses there?
7) What is the country of your passport?
8) What (where) is the source of your income or wealth?

In a country like France, 5 of these makes you a tax resident.

Last edited: Oct 1, 2024