Tax Treaty Residence and NHR - TEAC (or Spain) Dixit
«efecto pernicioso y contrario al espíritu de los Convenios»
“a harmful effect contrary to the spirit of tax treaties”
«no deja de ser una postura engañosa o farisaica»
“amounts to a misleading or hypocritical/pharisaical position”
«estatuto de residente se mixtifica con gradaciones»
“resident status becomes hybridised through gradations”
«casos que podríamos tildar de “velado o borroso”»
“cases that could be described as ‘veiled or blurred’”
«flagrante contradicción del espíritu y finalidad del Convenio»
“a flagrant contradiction of the spirit and purpose of the Treaty”
This is remarkably severe language.
Yet these are expressions used by the Spanish TEAC (RG 7650-2022, RG 5590-2022, RG 8144-2022 and RG 5699-2022), when considering the application of the Spain–Portugal Double Tax Treaty to Portuguese Non-Habitual Residents.
Let’s try to put this into perspective.
First: Spanish domestic tax residence is already a remarkably broad concept. A person can be regarded as Spanish tax resident even without spending 183 days in Spain where: “the main core or base of their economic activities or interests, directly or indirectly, is located in Spain.” Recent case law confirms that this test may involve looking at income, movable and immovable assets, investments, where assets are managed and administered, and other economically relevant connections.
Second: there is no rigid weighting formula for this test. It is an intensely factual and sometimes intrusive exercise, with substantial room for judgment. And let’s be frank: for someone who has lived and worked in Spain for many years, completely severing every economic connection with Spain may be practically impossible.
Third: the TEAC’s NHR doctrine prevents the normal Treaty safeguard from ever being reached. Its position is that a Portuguese NHR may indeed be resident in Portugal under Portuguese domestic law, but nevertheless fail to qualify as a Portuguese resident for Treaty purposes. Once the TEAC denies Portuguese residence for purposes of Article 4(1), Article 4(2) is never reached: the tie-breaker disappears from the analysis and Spain falls back on its domestic rules.
Fourth: Spain’s highest courts have repeatedly insisted on the architecture that would ordinarily prevent precisely this problem. Where Spain and another Treaty State both regard a taxpayer as resident, the conflict cannot simply be resolved unilaterally under Spanish domestic law. The Treaty must intervene, and its tie-breaker rules must be applied autonomously.
So we arrive at the paradox.
Imagine a football match.
The Tax Treaty is supposed to be the neutral ground on which competing residence claims are resolved according to mutually agreed rules and principles of Treaty interpretation.
But the TEAC’s approach seems to allow Spain first to say that the Portuguese residence certificate does not get the taxpayer onto the neutral ground at all and then to decide the match under Spain’s own, expansive domestic residence rules.
The sequence becomes:
We do not accept the taxpayer’s Portuguese residence for Treaty purposes.
Article 4.2 (tie-breaker rule) is never reached.
We revert to Spanish domestic law.
We ask whether the taxpayer’s direct or indirect economic connections with Spain are enough to establish Spanish residence.
Another 2026 TEAC case (RG 4837-2019) illustrates how far also this qualitative analysis may extend: Spanish income-producing real estate and business investments were considered to carry greater qualitative weight than a higher-value art collection situated abroad. This is precisely the “golden cage” paradox: the economic ties built up during years of residence may themselves become the basis for arguing that the taxpayer has never really left.
For a former long-term Spanish resident, those “economic ties” may not be a particularly difficult case for the Administration to construct.
BUT let’s be clear that in our view, that is the wrong reading of Article 4(1). “Liable to tax” is a legal concept concerned with the scope of liability arising from residence, not with the effective amount of tax ultimately paid. Under the Portuguese NHR regime, foreign-source income was not outside the scope of Portuguese taxation. It was subject to tax and could then benefit from a conditional exemption. Conflating exemption with non-subjection effectively writes an “effective taxation” requirement into Article 4(1) that is not there (unless specifically agreed by the treaty partners).
Treaty interpretation should not start with a disliked tax outcome and work backwards towards a reading of the Treaty that prevents it. Yet the TEAC’s reasoning appears heavily influenced by the prospect of double non-taxation: it starts from the perceived undesirability of the outcome and uses that concern to support the denial of Treaty residence. That is not really an abuse analysis. It reflects something more fundamental, a distrust of the tax policy choice made by the other Contracting State. But a tax treaty necessarily requires each State to accept that the other may exercise its taxing rights differently, including by choosing not to tax income that the Treaty permits it to tax.
But what happens when the Treaty safeguard itself has already been removed?
A taxpayer can, of course, fight. But let’s look at the three cards available.
Mutual Agreement Procedure. The MAP is the traditional Treaty mechanism (Article 25 of the Spain–Portugal Treaty) for resolving double taxation and residence conflicts. But fundamentally it remains a negotiation between competent authorities. There is no general guarantee under the traditional MAP that the two States will actually reach an agreement, and timelines are comparatively flexible. More importantly in this context, Portugal’s MLI position excluded Article 4 residence cases from mandatory binding arbitration. So, precisely in the type of residence dispute we are discussing, the MLI does not provide the taxpayer with an automatic arbitral backstop if the competent authorities fail to agree.
EU Dispute Resolution Mechanisms Directive (or DRM). The EU DRM (Directive 2017/1852) provides a stronger procedural backstop, with deadlines and, where the competent authorities fail to resolve the dispute, access to an Advisory Commission or alternative dispute-resolution body. But it needs to be coordinated carefully with domestic litigation.
Spanish litigation. The recent high court precedents are positive, but they do not eliminate uncertainty. Once you enter the tie-breaker analysis, you are dealing with concepts such as permanent home, centre of vital interests and habitual abode, concepts that may not always be applied following OECD Commentary and as predictably as taxpayers would hope. In practical terms, litigation can still feel like playing the lottery.
So yes, there are remedies.
But surely the most efficient remedy is for Spain and Portugal to sit down at the table and reach a common understanding on how Article 4 applies to taxpayers under these special regimes, rather than forcing individuals into years of domestic litigation, MAP proceedings or EU dispute resolution.
That would restore what should be a tax treaty equilibrium. Otherwise, for internationally mobile former residents, tax residence risks becoming something remarkably close to a golden cage: easy to enter, but considerably harder to leave.
© Kore Partners, 2026
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