The Dance of the Lions






(2) Space, Time, Subject


§96. Every patrimonial increase, be a result of work or pure reproduction of capital, is related to a subject that holds its patrimony and acquire its in a period and in certain special conditions. By the way, time and space (or time-space, depending the physical assumptions that are adopted) are conditions of possibility of the existence of anything.

§97. The space issue, however, it is the big question that deserves spotlight in the juridical perspective, considering that it even ends up defining the subject (the taxable person). Lets talk a little about residence for taxation purposes.

§98. The International Tax Treaties defines the residence, related to individual subjects (natural persons), juridical fictions (legal entities), and even to factum societas, using terms as “center of vital interests”, “habitual permanence”, “nationality” and “effective administration headquarter”, observing that when these terms do not permits the determination of the residence of whom operates in multiple jurisdictions, “the Hirer States will solve the issue in common agreement”.

§99. Be aware that this is about a degree issue, measuring, of the activities and facts of a taxable person that are objects of taxation. This implies that the fact issue gets relevance, in a way that always will be necessary a quantitative judgment of the subject operations to determines the residence and, therefore, one of the possibility’s conditions of the tax obligation.

§100. The exception helps in this quantitative determination of the measure in which the transitoriness, the preparing and the assistance becomes different of the perennial, of the operation and the principal (central); in this meaning, in one side, there is the maintain of the establishment for the ends to stock goods that will be used in an exhibition, delivery or storage, and, at an opposite other side, the headquarter, the subsidiary, the branch office, the factory and the workshop.

§101. For example, in the Tax Treaty among Brazil and Belgium, the taxable subject domicile is defined as:

Convention. Article 4 – Fiscal Domicile.

1. In the meaning of the present Convention, the expression ‘resident of a Contracting State’ is any person that, by the legislation of this State, is subject to this tax, by reason of his domicile, of his residence, of his headquarter administration or by any other criteria of analogous nature.

2. When, according to the disposition of paragraph 1, a natural person was considered resident of both Contracting States, the situation will be solved according to the following rules:

a) the mentioned person will be considered as resident in the Contracting State in which the person has a permanent license/visa. When the person has a permanent license in both Contracting States, will be considered resident in the Contracting State in which has more strict personal and economical relations (center of vital interests);

b) if the Contracting State in which this person has her center of vital interests can not be determined, or if this person has not a permanent license in any of the Contracting States, will be considered resident of the Contracting State in which remain habitual;

c) if remain habitual in both Contracting States or if not remain habitual in any of them, will be considered resident of the Contracting State in which is a national;

d) if the person was national of both Contracting States or if was not national of none of them, the competent authorities of the Contracting States will solve the issue in common agreement.

3. When, in accordance to the dispositions of the paragraph 1, a person that was not a natural person was considered as resident of both Contracting States, will be considered resident of the Contracting State in which was its headquarter of effective administration

§102. And, in the sphere of the federal legislation infra International Treaty, the Brazilian National Tax Code, on residence, states, in the Article 127:

Tax Code. Second Book – General Norms of Tax Law. Title II – Tax Obligation. Chapter IV – Passive Subject. Section IV – Tax Domicile. Article 127.

In the absence of election, by the taxpayer or the liable person for the tax payment, the tax domicile, in the form of the applied legislation, it is considered as:

I – concerning the natural persons, their habitual residence, or, being this uncertain and unknown, the habitual center of her activities;

II – concerning the legal entities of private law or the individual firms, the place of the headquarter, or, in relation to the acts or facts that originated the obligation, or of each establishment;

III – concerning the legal entities of public law, any of its government department in the territory of the tax collection entity.

§1º When it is not possible to use any of the norms of above incises, the tax domicile of the taxpayer or of the liable person for the payment of tax will be considered as the place of the goods or the place of the acts and facts occurred that originated the obligation.

§2º The administrative authority can refuse the elected domicile when this make harder or make it impossible to collect and supervise the tax, case in which the previous paragraph will be applied”.

§103. Once defined the space, the time and the subject that constitute the phenomenon of taxation, it becomes possible, then, know of what State has the possibility of charging the tax, and of what State will remain the acceptance of tax credit for the purpose of compensation – main mechanism to avoid double taxation (which is the same as a State recognizing its impossibility of charging tax in certain situation).

§104. Always previously preserving the reasonableness in the solution of tax issues, I understand that the hierarchy of the normative power related to the tax legal order shall be understand by the following order: 1. Constitutional norm of the Sovereign State; 2. International norm used as instrument of agreement among two or more sovereign States constitutionally constituted; 3. Federal norms of the sovereign State, or equivalent in the meaning of have greatest strength after the Political Charter and the International Treaties, observing the interpretative criterion that goes from the general (National Tax Code) to the specific (federal norms of tax’s kinds); 4. Other species of norms, that considers the administrative level, as normative rulings of the Brazilian Federal Revenue.

§105. Dear reader, it is important to note that there is no organism able to sanction the Contracting States by contract breach, but only them in relation to each other; by this that I structured the order of normative power putting the constitutional norm in first place and as the more basilar than the norm of the international treaty, that in power shall to be under the Constitution. However, the international norm is strongest than the national law, being imposed to the State, by transformation of its internal order, but without modify its constitutional structure. In this meaning, there is the Article 98, of the Brazilian National Tax Code:

The international treaties and conventions revokes or modifies the internal tax norms, and will be observed by the new internal tax norms

§106. There was a paradigm change: from national private property to global private property (for tax purposes). The global private property (for tax purposes) is a result of the sovereignty in a globalized World, in which sovereignty acquires mobility to beyond its territory concerning actions of their residents*. The eyes of sovereign follow their residents around the World; and the lions has jealous of their residents feed other lions.

* In some cases is not a issue of residence, but of nationality (e.g., USA and the World-wide Income Taxation on nonresident citizens). In other cases, residence determines nationality (e.g., a company with headquarter in Brazil is a Brazilian company).

§107. And with this new sovereign we have the birth of the World-wide Income Taxation. The main problem of this is that, e.g., multinational corporations with profitable business in two jurisdictions will be taxed twice. How to defend the global private property from the voracity of two Lions, making possible international business? The best answer is with Tax Treaties against Double Taxation. 


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Rafael De Conti, Rafael Augusto De Conti, Brazilian Tax Lawyer, Lawyer in Brazil