3.1.1.1.3 Nationality

A few states levy inheritance and gift taxes based on the nationality of the person independently or in combination with the previous criteria (extended residence/domiciled rules).1

It could be argued that if states desire to establish a permanent link with their individuals, they should tax them based on their nationality. Nationality establishes the longest-lasting link between a person and a state. Furthermore, it is difficult for a person to acquire a new nationality without having lived a minimum number of years in another state. Therefore, it would seem ideal for inheritance and gift tax purposes given that it guarantees a long-lasting link between a person and the state concerned. On the other hand, it has been argued that taxation based on nationality might not be ideal and reasonable for inheritance and gift tax purposes given that people build their wealth in their state of residence, which should have the right to tax their wealth. In that regard, Rust put forward that the taxation of nationals of a state living abroad and the non-granting of any (or only a few) public goods to them, and the non-taxation of aliens and the granting of public goods to them is apparently contrary to the idea that taxes should be paid in consideration for public goods provided by the government.2

Regardless of the above, double taxation is possible if one state establishes its worldwide tax jurisdiction based on the nationality of a person while the other on his residence: if the deceased, national of the first state, resided in the latter state, both states might seek to tax the worldwide inherited or donated property, as seen in the following graphic.