Residence under the convention and Article 4 paragraph 3

The general tie-breaker rule

The convention follows the OECD Model in defining a resident of a contracting state as a person who is subject to unlimited tax liability under the law of that state. When an individual is resident in both states, Article 4 paragraph 2 resolves the conflict in the familiar sequence. The person is deemed resident in the state in which he has a permanent home available to him. If he has a permanent home in both states, the state with which his personal and economic relations are closer, known as the centre of vital interests, prevails. Where that centre cannot be determined, the person’s habitual abode decides, with nationality as the last resort.¹ The rule for the year of the move, laid down in Article 4 paragraph 5, is important in practice. It splits the year of departure into a German and a Swiss period, which allows the precise timing of a relocation to be planned.

German domestic law determines unlimited tax liability by reference to the domicile (Wohnsitz) under § 8 of the Abgabenordnung (AO) and the habitual abode (gewöhnlicher Aufenthalt) under § 9 AO. A person has a domicile wherever he has a dwelling under circumstances that suggest he will keep and use it. The habitual abode is presumed after a stay of more than six months.² The German concept of domicile is notoriously wide. A furnished flat that the taxpayer keeps for occasional visits can be sufficient, even if his family, his furniture and his social life are in Zurich. For this reason the first piece of advice given to a German who moves to Switzerland is almost always to give up every dwelling in Germany that remains at his disposal.

The special rule of Article 4 paragraph 3

That advice is not merely a matter of prudence under German domestic law. Article 4 paragraph 3 of the convention contains a rule that has no parallel in the OECD Model. An individual may be deemed resident in Switzerland under the tie-breaker rule of paragraph 2. Germany may nevertheless tax him under the rules on unlimited tax liability if he has a permanent home in Germany or stays there habitually for at least six months in the calendar year. In that case Germany exempts certain Swiss-source income under the method article and grants a credit for Swiss tax on the remaining Swiss income.³ The effect has been called überdachende Besteuerung, literally “roofing taxation”, because German tax is laid over the Swiss tax like a roof. The taxpayer pays the higher of the two burdens on most of his income, although Swiss business profits and certain other items remain exempt in Germany.

The practical consequence is stark. Tax advisers on both sides of the border have described the arrangement as a special rule under which a departure to Switzerland is recognised for tax purposes only if the taxpayer gives up his habitual abode together with every permanent home in Germany.⁴ A German manager who moves his family to Küsnacht but keeps a flat in Munich for his weekly visits to the German headquarters therefore remains subject to German worldwide taxation, even though his centre of vital interests is plainly in Switzerland. The rule also applies to employees who are seconded from Switzerland to Germany and keep a dwelling there. A tax bulletin of one of the large accounting firms described the case of a Swiss resident employee assigned to Cologne for eighteen months. His salary attributable to German working days became taxable in Germany with a credit for Swiss tax. The bulletin noted that the rule creates a fictitious residence in Germany that prevents the exploitation of the rate differential between the two states.⁵

Article 4 paragraph 3 is not limited to German nationals. Its criterion is a physical connection with Germany, which makes it relevant also for Swiss citizens and third-country nationals who maintain a residence on both sides of the border. For tax criminal law the rule has a particular significance, because taxpayers who believe that the tie-breaker rule protects them from German tax may fail to declare income that remains taxable in Germany. A German publication on voluntary disclosures has accordingly devoted a special article to the rule as a frequent source of undeclared tax.⁶

Notes

1. Fedlex, SR 0.672.913.62, consolidated version of 27 November 2025, cited above, Article 4 paragraphs 1 and 2. Article 4 paragraph 5 provides that where a person changes residence during the year, each state may levy taxes that depend on residence only for the time during which the person is deemed to be resident in that state. ↩
2. § 8 AO: “Einen Wohnsitz hat jemand dort, wo er eine Wohnung unter Umständen innehat, die darauf schließen lassen, dass er die Wohnung beibehalten und benutzen wird”, https://lxgesetze.de/ao/8. § 9 AO: a habitual abode exists where someone stays under circumstances indicating that he is not merely staying temporarily, and it is presumed in any event after an uninterrupted stay of more than six months, https://lxgesetze.de/ao/9. § 1 para. 1 EStG links unlimited income tax liability to domicile or habitual abode in Germany. ↩
3. NWB Datenbank, “DBA Schweiz Artikel 4 Ansässige Person”, https://datenbank.nwb.de/Dokument/95072_4/, reproducing the text of Article 4 paragraph 3, which refers to a “ständige Wohnstätte” or a “gewöhnlicher Aufenthalt von mindestens sechs Monaten” in Germany and provides for the application of Article 24 paragraph 1 to certain Swiss income and for the credit of Swiss tax on other Swiss income. ↩
4. Peter Happe and Samuel Kistler, “Einkommensteuerliche Planungen vor dem Wegzug und Zuzug von natürlichen Personen zwischen Deutschland und der Schweiz”, Steuer Revue 12/2019, reproduced by GHM Steuerberatungsgesellschaft, https://www.ghm-partners.de/publikationen-einkommensteuerliche-planungen-wegzug-zuzug-deutschland-schweiz/. ↩
5. Deloitte, “DBA Schweiz – überdachende Besteuerung im Fokus”, Deloitte Tax-News, 20 August 2014, https://www.deloitte-tax-news.de/arbeitnehmerentsendung-personal/steuerrecht/dba-schweiz--ueberdachende-besteuerung-im-fokus.html. ↩
6. Johannes Leusder and Florian Kitzig, “Selbstanzeigenberatung | Art. 4 Abs. 3 DBA-Schweiz: Die überdachende Besteuerung”, Praxis Steuerstrafrecht (PStR) 05/2014, 16 April 2014, iww.de, https://www.iww.de/pstr/schwerpunktthema/selbstanzeigenberatung-art-4-abs-3-dba-schweiz-die-ueberdachende-besteuerung-f75246. The authors stress that a move to Switzerland does not automatically end German tax obligations and discuss corrective declarations for clients with undeclared income. ↩

For general information only. This article does not constitute legal or tax advice, does not replace advice on an individual case and creates no lawyer-client relationship. It reflects the legal position as of September 2025.