International tax treaties and double taxation challenges

For instance, Spain’s worldwide income tax system poses challenges for immigrants, particularly high-net-worth individuals and digital nomads. Many maintain economic ties to their home countries, often facing double taxation risks despite tax treaties. In practice, individuals residing in Spain but earning abroad may still be deemed tax residents in their home country, leading to overlapping tax liabilities.

While double taxation treaties (DTT) aim to mitigate these burdens, their application remains complex. Those relocating to Spain for security or lifestyle benefits must strategically structure their finances to optimise tax efficiency while ensuring compliance with international regulations.

In another example, when individuals immigrate to Germany while maintaining financial or residency ties to their former home countries, there is a risk of both jurisdictions seeking to tax certain income sources. Tax systems vary, with some countries taxing income generated within their territory or from domestic sources, while others base taxation on domicile or citizenship. Where a DTT exists, it’s important to determine which country has the right to tax specific income, impose withholding taxes, or incorporate that income into the overall tax rate.

Should certain countries view the same topic differently (e.g. one sees a payment as a dividend and the other one sees it as trade income), double taxation may arise. If the DTT does not provide a solution, the only way out may be a case before the fiscal court or a mutual agreement procedure between the tax authorities of the countries involved, which may take years. 

With the Organisation for Economic Cooperation and Development (OECD) model convention there is a general template for a DTT, but since DTTs are negotiated bilaterally between the involved countries, each DTT may be slightly different. A DTT can only be applicable if two countries are involved (residence country and source country) and there is a legal basis for taxation based on national law in both countries. DTTs usually rule that income from real estate is taxed in the country where the real estate is located, and trade income and income from employment is usually taxed where the trade or work is carried out. However, there are many exceptions and it is necessary to carefully read and understand them. 

In conclusion, strategic tax planning, the proper application of DTTs, and expert advisory services are essential for facilitating global mobility and ensuring the successful expansion of cross-border businesses while maintaining compliance with regulatory frameworks.

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Feliza Bahamonde is the Managing Partner at Visa and Go. She studied law at the Universidad Católica, Chile and at the Universidad Internacional de La Rioja, Spain. She also holds a Master’s in Digital Law and New Technologies from the University of Salamanca, Spain. She's Global Chair of the GGI Global Mobility Solutions Practice Group.

Oliver Biernat is Founder and Managing Partner of Benefitax. He is a German Chartered Accountant, Certified Tax Advisor and Specialist Advisor for International Taxation with more than 30 years of experience. Since 2008, he has chaired GGI’s International Taxation Practice Group (ITPG), increasing its size to more than 645 experts from 90 countries in the process.