3.1.1.9 Situs taxation

The taxation based on the situs of the property can also give rise to double taxation due to the different ways states tax based on the situs principle. First, the definition of the situs of a property may differ from state to state. This can often lead to double taxation as both states may consider an asset domestic. Double taxation relief is not in most cases available.

Furthermore, I note that defining the situs of the intangible property is far more complicated than that of tangible property, where the physical location of the tangible assets is decisive and is usually clearly visible.1 On the other hand, the definition of the situs of intangible property is based on a notion2 or mental concept.3 Several examples have been mentioned in the literature.4 For example, Maisto states that some states determine the situs of bank accounts and deposits based on the debtor’s residence while others consider them liabilities incurred through a foreign permanent establishment (hereinafter: “PE”).5 Concerning copyrights, reference is made either to the state in which the literary work is published, the state in which the copyright may be enforced or the state in which the literary work was published.6 Furthermore, the relevant situs criteria concerning corporate shares can be the domicile of the statutory head office of the corporation, the place of registration/incorporation, the social domicile of the corporation, the place where the share certificates are deposited or registered or the place of the register of the shareholders. Similar situs rules apply to corporate and government bonds.7 In addition, the situs rules may differ as regards life insurance proceeds, book debts, mortgages and hypothecs, the interest of a beneficiary in a trust, partnership interests, personal effects of a deceased transient, ships and aircrafts.8

Double taxation arising due to the application of different situs rules is often a highly complex type of double taxation. Double taxation relief does not seem to work in the case of a conflict between two situs rules. In other words, relief is not often granted if both states consider that the property is situated in their territory. What is more, the state of the personal nexus will most probably grant relief for the taxes levied by the other state, which, according to its domestic law, is the state of the objective nexus. Thus, it is unlikely to provide relief for the taxes imposed by any other state that is not the state of the objective nexus under its domestic law. In that regard, Goodman provided an example of the situs rules of the state of the personal nexus according to which the shares of a corporation incorporated in that state are regarded as being situated there. Accordingly, this state will tax the shares in its capacity as the state of the personal nexus and consider in all events that the shares are located in its territory as the company is incorporated under its domestic law. However, under the situs rules of another state, the share certificates, which are physically located in its territory, are treated as domestic property. Therefore, this state may also seek to tax the share certificates based on an objective nexus. As a result, the shares may be taxed twice in two different states. Nevertheless, the state of the personal nexus will not usually grant double taxation relief for the foreign tax levied on the shares.9