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Under German law, an individual (natural person) is subject to German tax on his worldwide income if he has either a domicile (Wohnsitz) or his habitual place of abode (gewoehnlicher Aufenthalt) in Germany (sec. 1 EStG). As is the case under the tax law of most countries, citizenship is irrelevant. The definitions of domicile and habitual abode are found in the tax procedure act. This provides that an individual is domiciled where he has a dwelling under circumstances which permit the inference that he will retain and use it (sec. 8 AO). It is possible to have more than one domicile in this sense. By contrast, an individual has only one habitual abode (sec. 9 AO). This is located where he is physically present under circumstances which show that his presence in the place or area in question is not merely temporary. Even if briefly interrupted, a continuous presence in Germany of more than six months is always deemed to constitute habitual abode in Germany ab initio (except where the stay is for private purposes such as a visit, recreation, or medical treatment and does not exceed one year).

Of the two concepts, it is generally domicile which is the easiest to determine. Domicile alone was at issue in a recent decision of the Federal Tax Court (BFH DB 1997, 1498 - 19 March 1997), which involved a German married couple who had lived for almost six years in Saudi Arabia, where the husband worked for the local dealer representing his German employer. The assignment to Saudi Arabia, a country with which Germany has no tax treaty, was at first for two years and was then twice extended. The couple rented an apartment in Saudi Arabia. At the same time, they retained their German condominium and each year spent between three and eight weeks there. After the stay in Saudi Arabia, they moved back into their German condominium. The German tax authorities treated the husband as having been domiciled in Germany and hence subject to German tax on his income earned in Saudi Arabia.

That the couple had maintained a dwelling in Germany was clear. The controversy surrounded the required intent to retain and use the dwelling. The court distinguished cases in which "vacation homes" used for up to five or six weeks a year had been held not to constitute domiciles because used for vacation purposes, as opposed to dwelling purposes. Such an inference, the court said, was not possible when the dwelling in question constitutes the taxpayer's sole dwelling before and after a stay abroad and is maintained throughout the stay abroad in condition permitting it to be used as a dwelling at any time. The court also gave weight to the circumstance that the assignment to Saudi Arabia was for a fairly short period of only two years in each case, hence that return to Germany in the near future was always a definite possibility. The fact that the dwelling was in fact regularly used, albeit to a limited extent, over the course of the stay abroad was cited as a third factor.

It is not clear from the decision whether the second and third factors were crucial to the holding or used as mere makeweights by the court.

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