Is tax residency becoming obsolete?

For decades, tax residency has been the cornerstone of international taxation.

It determines where individuals are taxed, where companies are anchored, and how taxing rights are allocated between states.

At Altara Tax, we believe this central concept is increasingly under strain — to the point where its long-term relevance must now be openly questioned.

Not because the law has already changed.

But because the economic, human and operational realities on which tax residency was built no longer reflect how value is created today.

Tax residency: a concept built for a different world

Tax residency assumes a relatively simple equation:

• one individual,
• one main place of life,
• one primary economic centre,
• one jurisdiction with the strongest claim to tax.

That model made sense in a world of limited mobility.

It makes far less sense in a world where:

• entrepreneurs operate across borders by default,
• decision-making is distributed,
• teams work remotely,
• assets are fragmented internationally,
• and personal and professional ties legitimately span several countries at once.

In such a context, residency often becomes a legal fiction — sometimes coherent, sometimes fragile.

Why the residency model is increasingly artificial

The problem is not that tax residency no longer exists in law.

It is that it no longer consistently reflects economic reality.

Tax authorities are asked to determine a “centre of life” where none is dominant. Courts are asked to weigh ties that are intentionally diversified. Treaties are asked to resolve situations they were never designed to address at scale.

As a result:

• residency disputes multiply,
• outcomes become increasingly fact-driven and unpredictable,
• and the gap between formal residence and actual value creation widens.

This is not a marginal issue. It is structural.

The rise of source-based thinking

Against this backdrop, taxation at source is gaining renewed traction.

Long associated with developing economies and the UN Model Tax Convention, source-based taxation focuses on:

• where functions are performed,
• where markets and users are located,
• where execution capabilities exist,
• and where value is effectively generated.

What is new is not the concept itself, but the audience now engaging with it.

Source-based reasoning is no longer confined to emerging economies. It is increasingly discussed — and sometimes defended — within OECD jurisdictions themselves, particularly as traditional frameworks struggle to adapt.

Pillar One, Pillar Two, and the limits of repair

The OECD’s recent difficulties with Pillar One and Pillar Two are telling.

These projects were attempts to rebalance taxing rights without abandoning residency as the organising principle. Their slow, uneven and fragmented implementation highlights a deeper issue: patching the system may no longer be enough.

When a framework requires constant exceptions, overlays and corrective mechanisms, the question is no longer technical. It is conceptual.

What replaces residency if residency no longer holds?

This is the uncomfortable question many practitioners avoid.

If tax residency becomes increasingly detached from reality, taxing rights will inevitably gravitate toward other anchors:

• economic presence,
• operational substance,
• demand and users,
• execution capacity.

In other words, toward where things actually happen, not where residence is declared.

This does not require an explicit abandonment of residency. It can happen gradually, through interpretation, enforcement priorities and evidentiary standards.

And in many ways, it already is.

What this means for international entrepreneurs and HNWIs

If tax residency becomes less decisive, relying on it as the primary pillar of a tax strategy becomes risky.

Structures built on formal residence alone — without corresponding substance — are the most exposed in a world drifting toward source-based logic.

The future does not belong to those who choose the “right” country on paper, but to those whose structures remain coherent regardless of which lens is applied.

Altara Tax’s position

At Altara Tax, we do not treat tax residency as obsolete law.

We treat it as a concept whose centrality is increasingly fragile.

Our work is therefore not about defending residency at all costs, but about:

• testing structures against both residency and source-based reasoning,
• aligning tax positions with actual value creation,
• and building frameworks that remain defensible even if residency loses its primacy.

This is not about reacting to future reforms.

It is about structuring today for a world that no longer fits yesterday’s assumptions.

Conclusion: structuring for a post-residency world

Tax residency may remain in the law for years to come.

But its ability to carry tax positions on its own is fading.

Those who continue to rely on it as a standalone shield may find themselves defending a concept that no longer convinces.

Those who anticipate the shift — and structure accordingly — rarely do so under pressure.