Centrum for livsinteresser: En international dobbeltbeskatningskonflikt i et juridisk og økonomisk perspektiv

Abstract

In recent years the Danish tax administration’s determination of tax treaty residency in accordance with the OECD Model Tax Convention has become hinged with unclarity. Individuals who find themselves in a potential double taxation situation, have limited knowledge of the basis upon which the Danish tax administration rules, and the legislation and guidelines on this area have lately been arbitrary and not very transparent. This thesis investigates and discusses the consequences of divergent application and interpretation of the legislation concerning the centre of vital interests in article 4 (2) of the OECD Model Tax Convention (2017). The term “centre of vital interests" is used in order to determine individuals’ tax residency and to solve double taxation conflicts. The interpretation and correct application of this term is crucial in order to avoid double taxation conflicts. This thesis contributes to address the issue of the interpretation in recent administrative rulings. Initially, the thesis analyzes the applicable law of centre of vital interests by examining the article 4 (2) of the OECD Model Tax Convention, the OECD Commentary and Danish case law. Secondly, it is examined how the Danish tax authorities interpret centre of vital interests in recent administrative decisions and if this interpretation differs from applicable law. The economic implications that may arise in the assessment of centre of vital interests are examined in the economic chapter by applying the principal/agent theory on the relationship between the individual and the Danish tax authorities. This relationship is also analyzed from a game theory perspective in order to conclude whether the Danish tax authorities have incentive to withdraw from a lawsuit alleging a misinterpretation of centre of vital interests. The third part of the thesis will summarize the findings and compile two solutions in order to maximize the legal transparency and the social welfare while fulfilling the legal objectives of Danish tax law. The legal analysis concludes that centre of vital interests must be determined in the country to which the individual has the strongest personal and economic ties. Further, the legal analysis concludes that recent administrative rulings deviates from applicable law in the interpretation of centre of vital interests. The economic analysis concludes that asymmetric information appears between the individual and the Danish tax authorities in the assessment of the individual’s centre of vital interests. However, opportunistic behavior will not occur as long as the Danish tax authorities maximize their utility by complying with applicable law. It is also concluded, that the Danish tax authorities have an incentive to withdraw from a legal proceeding if the risk of being overruled by the court appears high. The first solution concludes that the Danish tax authorities can issue an interpretive guideline for the typical situations of the assessments of centre of vital interests. The second solution concludes that one can remove the Danish tax authorities’ option to withdraw from the legal proceeding. Both solutions will fulfill the legal objectives of Danish tax law and increase the legal certainty and social welfare