Importance of the term resident for the application of a double taxation treaty

A treaty only apply to residents of one or both contracting states

Most of the substantive provisions of the treaty require the recipient of income (or
owner of capital) to be a resident of a contracting state
In certain articles of the treaty (e.g. Article 10 of the OECD Model) it is necessary
to determine where the payer is resident
For the purposes of a tax treaty a person can only be resident of one contracting
state. This is important not only to eliminate a major cause of double
taxation(where a taxpayer is regarded by both states as being a resident) but also for
the application of many of the Articles of the treaty.

Economic double taxation is the double taxation of an object in the hands of two
different taxpayers e.g. profits derived by a company and subsequently paid out as a
dividend to its shareholder may be subjected to corporate income tax in the hands of
the company and to personal income tax in the hands of the shareholder.
Juridical double taxation, on the other hand, arises where the same taxpayer is taxed
twice for the same object, for example, on the basis of his nationality in one state and
on the basis of his residence in another.
(
(a) Tie-breaker rules of the OECD Model
For individuals
The following tests are to be applied in serial order:
(1) the state in which the individual has a permanent home available to him;
(2) the state with which his personal and economic relations are closer (centre of vital
interests)
(3) the state in which he has an habitual abode;
(4) the state of which he is a national;
(5) if none of the above tests point to a conclusion, the competent authorities shall then
settle the question by mutual agreement.
For companies
Where a company is regarded as resident of both contracting states by the domestic laws
of both states then for the purposes of the treaty it is a resident where its place of effective
management is situated. This is slightly different from central management and control.
Effective management is much more concerned with the day to day management of the
company. It is the place where the chief executive manages the company i.e. the day to
day decisions.