Introduction

Recently, the High Court of Australia rejected the Australian tax authorities' request to appeal against a decision of the Federal Court of Australia. In that case the Federal Court of Australia had held that an individual (an Australian citizen) had a 'permanent place of abode' in Bahrain even though, during the relevant tax year, he had lived in Bahrain in a temporary accommodation (a fully furnished rented apartment). 

Though the above-mentioned court decision dealt with an issue under the Australian tax law and not a tax treaty, it is an equally interesting decision even in a tax treaty context. For instance, consider the following scenario:

An expatriate (Mr. A) lives in a foreign jurisdiction (State S) for a period sufficient to render him ‘resident’ of State S in accordance with that state’s (domestic) tax law. But he is also considered resident of the state of his citizenship (State R) because he is domiciled in that state. Thus, Mr. A is a dual resident of State R and State S in accordance with the tax laws of the two states. And, consider that the tie-breaker rules in Art. 4 (Resident) in the tax treaty between State R and State S are identical to the tie-breaker rules in the OECD Model Convention. Further, we are informed that Mr. A does not have a permanent home in either of the contracting states and that it is not possible to determine the state in which he has his centre of vital interests. As consequence, the next tie-breaking criterion applies – i.e. the state in which Mr. A has habitual abode.

In this scenario, can the tax authorities of State S refer to the above-mentioned decision of the Australian court (discussed in detail in this article) and argue that Mr. A had ‘habitual abode’ in State S although during the relevant period he had rather frequently (in a relative sense) moved from one serviced apartment to another?

This article seeks to answer that question.