2.2.1.1 The personal nexus

As a rule of thumb, states levying inheritance or estate taxes rely on the deceased’s or the beneficiary’s personal nexus with their territory, which, if satisfied, makes the share that is attributable to the beneficiary (in the case of an inheritance tax) or the entire estate (in the case of an estate tax) taxable on a worldwide basis.1 Thus, the deceased’s entire property is subject to inheritance or estate tax, usually including immovable or movable property outside the state’s territory. Nevertheless, some states delimit their taxing rights even if a personal nexus is met, presumably to eliminate possible double or multiple taxation of the deceased’s property. For instance, they may exempt the foreign-located immovable and/or movable property under certain conditions.

In most states, the deceased’s personal nexus with the territory determines whether the state concerned enjoys worldwide inheritance or estate tax jurisdiction. If the deceased had a personal nexus with a particular state at the time of his death, then his worldwide property is subject to tax in this state with the tax being paid by the beneficiaries regardless of their personal nexus with the state. On the other hand, a few states use the beneficiary’s personal nexus with their territory to levy an inheritance or estate tax on a worldwide basis. If, therefore, the beneficiary has a personal nexus at the time of the deceased’s death with a state, this state can tax the share of the deceased’s worldwide property inherited by the beneficiary (irrespective of the state of the deceased’s personal nexus). Finally, the personal nexus may be assessed in some states at either the deceased or the beneficiary, meaning that an inheritance or estate tax may be levied on a worldwide basis if there is a personal nexus of the deceased or the beneficiary with their territory.

When levying inheritance or estate taxes, states apply a variety of concepts (or a combination thereof) to determine the deceased’s or beneficiary’s personal nexus with their territory. Rust observed that there are certain characteristics that personal nexus concepts should meet. These are: i) maintaining equality among different jurisdictions, ii) being administratively easy, and iii) being difficult to be manipulated.2

I observe that most states use the residence concept to establish worldwide inheritance or estate tax jurisdiction. In some states, the concept of residence for inheritance and estate tax purposes differs from that of residence for income tax purposes. Some other states also apply the income tax residence concept for inheritance and estate tax purposes. In that regard, Jones argued that residence, based on the six months’ presence criterion, may be right for taxing one year’s income, but seems much less apposite for charging lifetime capita. Nevertheless, some states apply income tax residence as a personal nexus concept.3 A notable factor is that some states apply extended residence rules and impose an extended worldwide tax liability on nationals who die within a certain number of years after immigrating to another state. These states usually provide for a credit for the taxes paid in the other state that may also seek to tax the deceased’s worldwide property based on the deceased’s actual residence there. The concept of residence for inheritance and estate tax purposes will be further examined in chapter 3 of this study.

Other states use the concept of the domicile to levy an inheritance or estate tax on a worldwide basis. The concept of domicile differs from that of residence as inferred by the income tax law; apart from the physical presence of a person in a state (on which the income tax concept of residence mainly focuses), the intention of the person to stay there indefinitely plays an essential role for the determination of whether he is domiciled there.

The concept of domicile may have different meanings. Under the domicile concept of the English law, every person must have a domicile, but cannot have more than one domicile. More specifically, every person is born with a domicile of origin. A domicile of origin is attributed to every person at birth by operation of law. This domicile does not depend on the place where the child is born, nor on the place where his mother or father reside, but on the domicile of the appropriate parent at the time of birth. As a result of this rule, a domicile of origin may be transmitted through several generations, no member of which has ever resided for any length of time in the country of the domicile of origin. It is generally accepted that a legitimate child born during the lifetime of his father has his domicile of origin in the country in which his father was domiciled at the time of his birth.4 Furthermore, a person may acquire a domicile of choice by moving from one state to another and living there with the intention to reside permanently or indefinitely in the new state (the so-called “animus manendi”).5 In such a case, the domicile of choice replaces his domicile of origin. It is noted that Sonneveldt (2002) was of the view that domicile as a concept aiming at finding a lifetime connection with a country, is particularly suitable for death taxation. In comparing this criterion with residence, it may be said that it is more difficult to use than its civil law counterpart.6

Finally, a state may establish worldwide inheritance and estate tax jurisdiction based on the deceased’s or the beneficiary’s nationality. It is true that nationality represents the most stable relationship between taxpayers and their state. Nevertheless, problems may arise in the case of multiple nationalities, which are becoming less rare due to globalisation and the free movement of persons, especially within the EU. Furthermore, taxation based on the nationality seems to disregard the individuals’ intention not to live permanently in the state of their nationality, especially if they do not occasionally visit this state in the absence of familial and economic ties.