Can a Person Be a Resident of No Country?
This is an intriguing issue that has often reached the courts in the context of tax payments by citizens who have spent significant periods in other countries. As is known, each country has its own rules that determine who is considered a resident for tax purposes, and so does Israel. Now we will examine several case studies on the matter.
The Rafi Amit Case
One of the prominent rulings that brought the issue to the legal forefront is the 2017 Rafi Amit case.
The ruling dealt with an Israeli citizen, Rafi, who began earning money from online and international poker games. During the 2000s, Rafi spent a lot of time abroad but continued to file annual income reports in Israel. The issue reached the court due to disputes over the tax assessment and the required tax burden between the taxpayer and the tax assessor. Rafi claimed that he did not meet the day count presumption listed in the law, as in the year in question (2007) he was in Israel for only 30 days, and therefore he was not considered an Israeli resident. The tax assessor, on the other hand, argued that according to the “center of life” test, which is the main criterion in the law for determining residency, the taxpayer is indeed an Israeli resident.
Individual Residency
Individual residency is defined in Section 1 of the Income Tax Ordinance. The section establishes two tests for determining a person’s residency:
- Days Test
- “Center of Life” Test
First, we need to examine the days test: Was the taxpayer in Israel for more than 183 days during the tax year, or 30 days during the tax year and more than 450 days during the tax year and the two preceding years? This test is a technical test that can be overridden by the “center of life” test, which examines where the taxpayer’s life is substantively centered.In the Rafi Amit case, the court found that the taxpayer was an Israeli resident for tax purposes based on the “center of life” test. One of Rafi’s arguments against being an Israeli resident was that in 2007 (the year in question), he was not a resident of any country. This argument did not support his case; in fact, it strengthened the tax assessor’s position. The court noted that while the Income Tax Ordinance does not require a person to be a resident of any country, it focuses on Israeli residency. A taxpayer’s claim to be a resident of another country supports their argument for severing residency ties. Since Rafi did not claim residency in another country but rather that he was not a resident anywhere, he did not meet the burden of disproving the “center of life” test, leading the court to rule that his center of life was in Israel.
We see that according to tax laws, it is not possible for a taxpayer to be a resident of no country. Not only do the days tests determine the taxpayer’s residency, but also the “center of life” test, which is broader and includes additional and different considerations, such as social and economic interests, the location of other family members, and so forth.
The court’s rulings express its position regarding the severance of residency: A prolonged stay abroad does not nullify the connection to Israel (as long as it concerns an Israeli citizen/resident). In other words, it does not necessarily indicate an intention to sever residency, and in the absence of such indication, the court will not consider the taxpayer as having ceased to be an Israeli resident.
Bar Refaeli Case
The Rafi Amit ruling also set a precedent in the Bar Refaeli case, where she was accused of tax evasion on her earnings. During her tax evasion trial for the years 2009-2010, the famous model argued in the Tel Aviv District Court that due to her work as an international model, which involved constant travel around the globe, she did not have a center of life for tax purposes in any country. She claimed that she visited dozens of countries and took more than a hundred flights a year, and therefore her lifestyle suited a person without tax residency.
During the years in question, 2009-2010, Refaeli paid taxes in the United States, but only on her US-sourced income. She did not report or pay taxes on her income from other countries. Since Refaeli was not considered a US resident for tax purposes at that time (as she did not live there for more than 183 days), the question arose – where was she considered a tax resident?
Judge Bornstein of the Tel Aviv District Court was not convinced that Refaeli’s degree of separation from Israel qualified as non-residency and ruled that her ties to Israel during those years defined her as an Israeli resident for tax purposes.
Can a Person Be a “Resident of No Country”?
In both rulings, the judges who addressed the claims of being a resident of no country for tax purposes did not accept the appellants’ arguments. However, they avoided making a principled ruling on the matter and only discussed it theoretically.
Judge Harry Kirsch of the District Court, who ruled in the Rafi Amit case, stated that in a legal-formal aspect, rare cases could exist where a person is not considered a resident of any country. He provided an example of a person living on a yacht, sailing from place to place without a permanent base. Kirsch emphasized the economic-social concept of the importance of determining residency. He explained that the state budget is primarily funded by taxes paid by residents living in the country and consuming the public services it provides. In Amit’s case, he ruled that Amit had not proven that his connections to each country were so weak that he did not substantially consume public services provided by the state.
In Amit’s appeal to the Supreme Court, Judge Neal Hendel addressed the discussed question and noted that the ordinance does not necessarily state that a person cannot be a resident of any country. However, he avoided directly addressing it because the issue in Rafi Amit’s case was whether Amit was an Israeli resident or not.
In the discussion of Bar Refaeli’s case in the District Court, the question of whether a person can be without residency was not discussed.
Judge Bornstein referred to the yacht story from the Rafi Amit ruling and determined that Bar Refaeli is not a person who sails from port to port on a yacht without a permanent base. He argued that although her frequent travels could be likened to a yacht, she still has a permanent home port to which she returns and benefits from the public services it provides.
Non-Residency for Tax Purposes
We see that the issue of non-residency for tax purposes in any country is a complex and intricate matter that has not yet received a definitive ruling. Theoretically, it may be possible, but the distance from the theoretical-legal level to practical rulings on the matter is vast. It is clear that not every prolonged stay abroad, no matter how long, indicates an intention to sever residency. Those wishing to sever residency or engage in activities abroad must thoroughly understand the various tax considerations and the cases in which they will still be liable for taxes in Israel according to residency rules. Therefore, it is advisable for someone seeking to sever residency to consult a professional who can represent them properly in this process to avoid future problems.
Additionally, it should be emphasized that there is an intention to legislate that the days test is a conclusive presumption that cannot be contested. Even in the case of someone who moves their residence and/or business abroad and wishes to maintain their residency or hold dual residency, it must be done professionally. Incorrect residency planning can lead to a “tax accident” where the individual is liable for taxes in two different countries, resulting in significant losses.
