Taxpayers' Residence as Basis for Exercising Tax Jurisdiction: A Conceptual Analysis

State’s jurisdiction to tax is exercisable when there is a link between the income derived and the proposed taxable person. The state can choose to attach such a nexus to the personality of the income earner who resides within its territory. It can then tax the person on a residence basis, whether or not the income was derived from a source within its territory (residence-based system). It can also attach such a link to the income itself, and then impose a tax on the basis of the source of that income, whether or not derived by a resident (source-based system). Thus, analysis of the concept of fiscal residence is crucial to the understanding of the extent of taxpayers’ liability under the residence-based tax regime. Using the analytical tool of doctrinal method, the paper bring to fore the paper examines the interface between states’ sovereignty and the scope their jurisdiction to impose and enforce tax. It also analyses the nature of fiscal residence and its theoretical underpin. It is found that, in choosing either of the residence or source based system, a state is expected to evaluate the central focus of its sovereignty, using a political conception of the state. The state may consider population as the main focus of sovereignty. Thus, imposing a tax on all income of its residents based on the personal relationship with the state, irrespective of the source of that income (residence-based). A state could as well consider its territory as the primary focus, thereby imposing a tax on all income derived from the territory, irrespective of the identity of the producer (source-based).

Key Words: International Tax Regime, States’ sovereignty, Residence-based tax Jurisdiction.