2.2.1.2 The objective nexus

In the absence of a personal nexus, states may still levy inheritance and estate taxes based on an objective nexus of the deceased or the beneficiary with the state concerned. The objective nexus justifies the levying of inheritance and estate taxes solely on domestic assets (the so-called “situs principle”).

In that regard, states can be divided into two categories concerning the determination of domestic assets that may seek to tax. The first category includes states that seek to tax only a few types of assets located in their territory, such as immovable property and certain types of movable property (narrow basis). On the other hand, the second category includes states that seek to tax a broad range of assets (broad basis).

Several states rely on private international law rules to determine the situs of assets while other countries rely on specific tax criteria. The differences in these rules, however, can often lead to jurisdictional overlaps and double situs taxation if both states classify an asset (e.g. copyrights, shares, bonds, and other securities) as a situs/domestic asset. For example, the situs rules of a state may stipulate that the company shares are located in the state of the registered office of the company which issued these shares whereas the situs rules of the other state may prescribe that the company shares are located in the state of the deceased’s or donor’s last domicile or residence. Double situs taxation is arguably the worst form of double taxation since no unilateral tax relief is available in such a case, as is discussed in the next chapter.

Finally, it should be noted that there are states which abstain from levying inheritance and estate taxes based on the situs principle in the absence of a personal link of the deceased or beneficiary with their territory.