3.1.2.4 Double or multiple non-taxation as a result of tax abuse

Finally, double or multiple non-taxation of the cross-border inheritance is possible in situations where an abusive element is present. For example, a person A is a resident of State A that establishes personal nexus based on the deceased’s residence. The property of person A is located in State C. This property does not qualify as a domestic asset to which the objective nexus rule of State C applies. In order to minimize the tax burden on his property upon his death, person A decides to move to State B that does not levy death taxes. He dies two months after the transfer of his residence. In that regard, neither of the states involved will seek to tax the cross-border inheritance. The deceased A was not a resident of State A at the time of his death, State B does not levy death taxes in general and State C will not seek to apply a death tax based on an objective nexus rule as the property does not qualify as a domestic asset. Therefore, the cross-border inheritance will not be taxed anywhere due to an abusive transfer of residence.

I note that this category of non-taxation is, in principle, distinguished from the previous category as it prerequisites an abusive action of a person (e.g., in most instances, the person owning the property to be inherited). Furthermore, it focuses on the state of the personal nexus (rather than the state of the objective nexus). However, I note that double non-taxation is also conceivable if there is an abusive element for the establishment of the personal nexus with a state and the state of the objective nexus unilaterally abstains from levying taxes (like in the case described in 3.1.2.3). This can be the case where the deceased abusively moves his residence to a state that does not levy death taxes and the state of the objective nexus abstains from taxing because it assumes that a tax is levied by the state of the personal nexus (thus, without establishing whether the state of the personal nexus levies a tax or taxes the inherited property from the very beginning).

Finally, I note that some states have introduced anti-abuse measures to safeguard their taxing rights in case of abuse1 (e.g. extended residence/domicile rules).