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]

Serbia

 

[daniels27]

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

The laws are︁ 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 centre︃ is. Unless of course, you never see them and are very active politically in another︄ country.

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

 

[Revoltec]

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 is︀ domestic, it doesn't need to follow the OECD guidelines.

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

 

[daniels27]

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

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

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

 

[Revoltec]

Just to clarify,︅ the 'centre of vital interests' is written in the domestic tax law of Serbia, without︆ any guidance or clarification of what it means.

I was born there and lived there︇ 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 and︉ removed it this year. No family as wife and kids but I got parents (only︊ formally registered) and grandparents (actually live there) and I guess no other connections than passport︋ and some empty bank accounts. There is no exit tax. Will probably move to Germany︌ where there is a DTA. However, there is not even a definition of what is︍ considered to be a 'permanent home' by Serbia domestic legislation or guidelines, and this would︎ be applied in case of a DTA. It would be a matter of interpretation, as️ always.

 

[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]

Yes. it is a matter of︄ interpretation. But in your case, it should not be too much of an issue. The︅ law is mainly aimed at families whose father lives across the river in Romania and︆ is benefitting from very low tax there, while of course inofficially living with the kids︇ and the mother in Serbia all evenings. Are your parents registered in another country?

Depends on the age. If︈ you are 18, they probably count too. If you are 65 and taking care of︉ your parents, they would also count.

 

[Revoltec]

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]

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 guess︀ 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 tax︀ agency of Serbia. They confessed to me that they do not even have the guidelines︁ for how to decide 'centre of vital interests' and that they exclusively base their decision︂ on other factors when you ask for a tax Residency certificate. Quite crazy how law︃ and practice can differ.

When it comes to benefiting from the tax treaty, it seems︄ 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 you︀ have keys to real estate. And trust me, more often than not, it is very︁ simple. And that's exactly when the court comes into play.

If it is a case︂ like you and Serbia where there is literally nothing other than a registration, the case︃ will never make its way to court. The government simply has no interest in your︄ case as it is hopeless. Your closest family members are your parents and they are︅ not there, you never really lived there for ages. How can they claim anything? These︆ laws are really made for obvious cases where you live there and then just leave︇ your wife behind with the kids and "move" to Isle of Man, but your apartment︈ there is a shithole and you have nothing other than a lousy pair of trousers︉ while your mansion in London is stunning and you are seen at every occasion flirting︊ with the princess on instagram. Or like the Boris Becker case in Germany, he moved︋ to Monaco but had a key to his house, which officially was owned by her︌ 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]

Isn't registration from a gov standpoint a very strong proof?

The 2 countries︎ only need to negotiatiate in case that this is the last point in the tax️ 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]

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.

Yes, exactly.︀ But look I gave you my opinion based on my experience. After all it is︁ Serbia and you have never been there for ages. If you are worried, you can︂ ask a lawyer, apply for a private letter ruling or you can file a tax︃ 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 up︅ 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, given︇ 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 not︉ told me about? Then, yes you can worry. But if you have no personal nor︊ 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]

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's︀ the typical case that then goes to court. But that's not you from what you︁ have told us so far.

 

[Revoltec]

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 not︀ completely following the law. They confessed they do not have guidelines for this "center of︁ vital interest" thing. In practice, it hasn't been applied yet. But if it does get︂ implemented, I am the one to take the punishment anyways. Without a registered address, I︃ cannot even apply for tax treaty benefits, as they think I am a non-resident automatically︄ without looking at the question more deeply stupi#21

I have sent a letter to the Ministry︅ of Finance to get a "professional opinion" but they are not legally binding. I have︆ not seen any option to a pre-ruling.
For 2021 I was in touch with them. Long story short, it︍ got too complicated and I stopped responding to their requests. I have never paid taxes︎ though.

I just hear about all these people that end up with a lot of️ 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]

Yes, exactly. They won't care if you are not registered. Unless you drive around︃ 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 anything︅ to you. Unless of course, you spend time there and the catch you. If you︆ are not going there "just for the weekend" do you think they will do what?︇

Look, I am not sure if I︌ already told you but those stories do not come up just like this. There are︍ people who live in Germany, Spain, UK, etc. and they try the hell to avoid︎ taxes in their homecountry where they grew up. You can look at those guys here:️

If you are in their shoes, that⁣ is exactly when they will use these laws against you. It is like
If you are in this situation and then︁ move to neighbouring Andorra or claim to be resident of Monaco, but never have been︂ 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 a︀ tax resident with that country as your center of vital interests:
1) Where do you︁ 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 that︃ country they can find you to be a tax resident.
4) Where is your car︄ registered /
5) Where do you vote?
6) Do you have any professional or other︅ licenses there?
7) What is the country of your passport?
8) What (where) is the︆ source of your income or wealth?

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