The Spanish Supreme Court resolves a residence conflict with the United Kingdom involving a remittance-basis taxpayer under the tie-breaker rules (STS 1392/2024)

The Spanish Supreme Court, in judgment 1392/2024 of 22 July (cassation appeal 7744/2022, Judge Rapporteur Merino Jara), dismisses the appeal of a taxpayer who, in the tax years 2010 to 2013, was taxed in the United Kingdom on the remittance basis and produced UK residence certificates.

By reference to STS 1214/2024 of 8 July (appeal 1909/2023), the Court does not examine whether a certificate may be disregarded because its holder is not taxed on worldwide income. It finds that the tax authorities had not challenged it but had recognised dual residence and resolved it under article 4.2 of the 1975 convention, in favour of Spain. The argument based on the remittance basis and article 4.1 of the convention was that of the lower court, which the Supreme Court does not adopt.

The remittance basis

The remittance basis allowed certain UK residents not domiciled in the United Kingdom to be taxed there on UK-source income and, as regards foreign-source income, only on amounts remitted or brought into the United Kingdom. Foreign income kept abroad was not taxed there in the year in which it arose.

The regime was in force in the years at issue. The Finance Act 2025 has abolished it for UK tax years after 2024-25, that is, for income and gains arising from 6 April 2025, and has replaced it with a new relief for foreign income and gains of individuals becoming UK resident.

The legal framework

Article 9.1 of Law 35/2006 of 28 November on Personal Income Tax (LIRPF) sets the criteria under which individuals are treated as tax resident in Spain. One of them, in letter (b), is that the main core or base of the taxpayer’s activities or economic interests lies in Spain, directly or indirectly.

For 2010 to 2013, the applicable convention was the Spain–United Kingdom double taxation convention signed in London on 21 October 1975, not the convention of 14 March 2013 that later replaced it. Its article 4.1 defines a resident by reference to each State’s legislation and excludes persons liable to tax in a State only in respect of income from sources in that State. Its article 4.2 contains the tie-breaker rules for persons resident in both States.

The case

The appellant, Ms Sagrario, did not file Spanish personal income tax returns for 2010 to 2013, considering herself resident in the United Kingdom, where she was taxed on the remittance basis. In those years she did not remit to the United Kingdom any income obtained outside it.

The Catalonia Regional Inspection Unit treated her as resident in Spain under article 9.1.b) LIRPF, in a procedure conducted in parallel with her husband’s. The assessment, recorded in an agreed audit report (acta de conformidad) of 14 July 2015, added interest on Spanish bank accounts and imputed income from a property available to her in Spain. The taxpayer argued that the inspectorate had to recognise the validity of the residence certificates issued by the UK authority for treaty purposes and resolve the dual residence under article 4.2.

The Catalonia Regional Economic-Administrative Court dismissed her claim on 31 January 2020. The First Section of the Contentious-Administrative Chamber of the High Court of Justice of Catalonia, in a judgment of 24 May 2022, dismissed her appeal. Its reasoning started from the premise that “what matters for present purposes is the taxation of the appellant’s worldwide income and not so much her UK tax residence certificate” (our translation): since she was not taxed in the United Kingdom on her worldwide income, article 4.1 of the convention did not treat her as a UK resident. The court reinforced that conclusion with article 23.1 of the 2013 convention and the Commentaries on the OECD Model.

The question referred

The order admitting the appeal, of 10 May 2023, raised a single question: “To determine whether a judicial or administrative body, in order to verify a person’s tax residence, may disregard the content of a tax residence certificate issued by the tax authorities of a country that has signed a Convention with Spain, on the ground that in that country the person is not taxed on worldwide income because they are subject to a regime which, although applicable to residents, limits taxation to income obtained in that State” (our translation).

What the Supreme Court decides

The Court does not answer that question. It refers to STS 1214/2024, which dealt with similar questions for another UK-resident taxpayer, and reproduces its reasoning. In that case, the tax authorities had not challenged the scope or validity of the UK certificate, so the question of whether it could be disregarded was considered hypothetical and “is not to be examined” (our translation).

In resolving the appeal, the Court applies that summary to Ms Sagrario’s case: “The tax authorities do not deny the validity and scope of the tax residence certificate. On the contrary, they consider it valid and effective and apply the tie-breaker rules of the convention” (our translation). The reason for the decision is therefore not that UK residence is denied, but that, the taxpayer also being resident in Spain, the tie-breaker favours Spain.

The criteria it sets, by reference to STS 1214/2024, are three. First, it reiterates the doctrine of STS 778/2023 of 12 June. Second, for article 9.1.b) LIRPF, the taxpayer’s activities and economic interests must be considered as a whole: where income is obtained, where movable and immovable assets are located and where they are managed from. Third, the centre of vital interests in article 4.2 of the convention is broader than, though not opposed to, the core of economic interests in article 9.1.b) LIRPF.

The ruling dismisses the appeal. The text published in CENDOJ contains, in its legal reasoning, the sentence “we are inclined to declare that the cassation appeal is upheld” (“nos decantamos por declarar haber lugar al recurso de casación”), which we read as a clerical error in light of the reasoning and the operative part. The fact that the case arose from an agreed audit report also weighed in the decision: the Court notes that the inspectorate and the lower court started from facts the taxpayer had accepted.

Our assessment

In our view, the judgment sets no doctrine on the value of the UK certificate of a remittance-basis taxpayer. The argument that such taxpayers are not resident for treaty purposes was that of the High Court of Justice of Catalonia and of the State Attorney, who expressly proposed that doctrine. The Supreme Court neither adopts nor rejects it.

Applying the summary of STS 1214/2024 to this case is not free from difficulty. According to the judgment’s own transcription, the lower court had downplayed the UK certificate precisely because the taxpayer was not taxed on worldwide income. Even so, the practical result is the same as if the conflict had been recognised: residence is attributed to Spain under the tie-breaker rules, in view of the taxpayer’s economic interests in Spain.

The underlying question remains open. For years before 6 April 2025, the debate on whether article 4.1 of the convention excludes remittance-basis taxpayers could arise again in a case where the tax authorities do challenge the certificate.

Practical consequences

Anyone who was taxed in the United Kingdom on the remittance basis while keeping significant economic interests in Spain should not rely on the UK certificate alone. Even if the conflict is recognised, residence will be decided under the tie-breaker rules of article 4.2 of the applicable convention —permanent home, centre of vital interests, habitual abode and nationality—, and evidence of ties with each State will be decisive.

The origin of the dispute should also be borne in mind. Signing an agreed audit report fixes the facts and greatly limits the scope for later argument, so the evidential strategy must be settled before that stage.