December 18, 2025 — Article 4 of the OECD Model Tax Convention is the provision that determines, for purposes of bilateral tax treaty allocation, where a person is considered resident when both contracting states would otherwise claim residency. For an individual, the article provides a sequenced cascade: permanent home in either state, then centre of vital interests, then habitual abode, then nationality, then mutual agreement procedure. For an entity, the article historically provided a place-of-effective-management test that was the principal residence determinant.

The architecture has been stable. Article 4 in approximately its 1963 form survived through the 1977 Model, the 1992 Model, the 2008 Model, and most of the 2014 Model with only marginal modifications. The 2017 Model contained a significant change to the corporate residence determination, replacing the place-of-effective-management test with a mutual agreement procedure for cases of corporate dual residence. The change was modest at the level of textual amendment but consequential at the level of practical operation.

The post-2017 period has produced a wave of treaty renegotiations that have substantively rewritten Article 4 in many bilateral instruments. The renegotiations have been driven by a combination of factors: the OECD's 2017 model shift, the Multilateral Instrument's selective amendment of existing treaties, the policy preference of certain jurisdictions for stronger tie-breakers, and the practical experience of the post-2008 period in which mutual agreement procedures had failed to resolve a significant proportion of dual-residence cases. The result is that Article 4, in 2026, looks materially different across the bilateral treaty network than it did a decade ago. This article reads the current state of the article and the directions in which it is moving.

The OECD Model Article 4 in its current form

The 2017 OECD Model Tax Convention provides, for individual dual residence, the sequenced cascade that has been familiar for decades. An individual deemed resident in both contracting states is to be treated as resident only in the state in which they have a permanent home available to them. If they have a permanent home available in both states, they are treated as resident only in the state with which their personal and economic relations are closer (the centre of vital interests test). If neither test produces a determinate answer, the test moves to habitual abode, then to nationality, then to mutual agreement procedure.

For corporate dual residence, the 2017 Model replaced the prior place-of-effective-management test with a mutual agreement procedure. Where a person other than an individual is resident in both states under domestic law, the competent authorities of the two states are to determine residence by mutual agreement, with regard to its place of effective management, the place where it is incorporated or otherwise constituted, and any other relevant factors. Failing such agreement, the person is not entitled to any benefit or relief under the treaty except as agreed by the competent authorities.

The 2017 corporate change was significant. The pre-2017 place-of-effective-management test was a determinate criterion that, while not always easy to apply, produced an answer. The 2017 mutual agreement procedure does not produce an answer mechanically; it requires the active engagement of both competent authorities. The change was made in response to perceived abuse of the place-of-effective-management test by groups that established management presence in low-tax jurisdictions to claim treaty benefits, but the change has produced its own administrative consequences, including delays in resolution of corporate residence disputes that the prior framework would have resolved more rapidly.

The renegotiation wave

The post-2017 renegotiation wave has been driven by three developments. The first is the OECD's 2017 model itself, which has been the basis for new bilateral treaties signed since 2017. The second is the Multilateral Instrument, which has selectively amended a significant proportion of pre-2017 bilateral treaties through opt-in provisions covering, among other items, the corporate tie-breaker. The third is the broader policy preference of several jurisdictions — particularly emerging-market jurisdictions — for stronger tie-breakers that more clearly allocate residence to their own jurisdiction in border cases.

The result has been a textual divergence within the bilateral treaty network. Treaties signed before 2017 typically retain the pre-2017 article unless amended by the Multilateral Instrument. Treaties signed after 2017 typically incorporate the 2017 model but with bilateral modifications. Treaties amended through the Multilateral Instrument incorporate selective elements of the 2017 model but retain much of the pre-existing structure. The cumulative effect is that the practitioner who needs to apply Article 4 in a specific bilateral context must read the actual instrument carefully; the assumption that any given treaty contains the OECD Model text is no longer reliable.

The shift in tie-breaker hierarchy

Beyond the textual changes, the more significant shift has been in the practical hierarchy of the tie-breakers as applied by competent authorities and by courts.

The permanent home test has retained its position as the first criterion. The administrative interpretation of permanent home has, however, narrowed. A residence available to an individual on a continuous basis qualifies as a permanent home; a residence available only intermittently or only for vacation purposes generally does not. The narrowing has produced cases in which an individual is held to have a permanent home in only one of the two contracting states, with the consequence that the cascade resolves at the first step.

The centre of vital interests test has acquired more interpretive weight. The administrative practice has moved away from a mechanical balancing of personal and economic relations toward a more substantive assessment of where the individual's life is principally lived. The factors considered include family location, social and cultural ties, professional activity, source of principal income, and the location of administrative centres of personal life. The test, applied this way, often produces a determinative answer where it would previously have required habitual abode as a tiebreaker.

The habitual abode test, when reached, has been interpreted in ways that produce more variable outcomes than the historical practice. The administrative interpretation of habitual abode now considers not only physical presence but also the regularity and continuity of presence in each state, with sporadic presence in either state weighing less than continuous presence. The test has, in some recent cases, produced surprising results where physical presence was concentrated in one jurisdiction but the regularity of presence indicated a different habitual abode.

The nationality criterion, in cases where it is reached, has retained its character as a default that resolves residual ambiguity. It is rarely the determinative factor.

The mutual agreement procedure, where it is reached, has been the source of the longest-running tax disputes in the cross-border individual practice. The MAP process has been improved in many bilateral relationships through procedural reforms, but the underlying dynamic — two sovereign tax authorities negotiating over a single individual's residence — produces delays and uncertainties that the prior tie-breaker tests, when functioning, could avoid.

The corporate residence reformation

The 2017 shift in corporate residence determination has produced effects that the model's drafters anticipated and effects they did not.

The anticipated effects include increased competent authority engagement on corporate dual-residence cases, with the consequence that residence determinations now reflect the considered views of both contracting state authorities. The pre-2017 place-of-effective-management test, while determinate, was applied largely by domestic courts and authorities without systematic bilateral coordination. The post-2017 mutual agreement procedure forces coordination, with the consequence that the residence determinations are more consistent across treaties but slower to reach.

The unanticipated effects include the emergence of corporate residence cases in which both contracting states' competent authorities decline to engage, with the consequence that the corporate is denied treaty benefits in both states. The 2017 model contemplates this outcome — the failure of mutual agreement leaves the corporate without treaty relief — but the practical effect on cross-border investment has been more disruptive than anticipated. Several major multinational groups have, in the post-2017 period, restructured to avoid corporate dual residence altogether, simplifying their group structures to ensure that each entity is unambiguously resident in only one jurisdiction.

The corporate residence question has acquired additional complexity in the post-2024 Pillar Two environment. Pillar Two operates on a per-jurisdiction basis using its own residence determination, distinct from the bilateral treaty determination. An entity that is treaty-resident in one jurisdiction for purposes of bilateral relief may, for Pillar Two purposes, be treated as part of the constituent entities of a different jurisdiction. The interaction has produced administrative cases that the framework's original design did not address and that are being worked through in OECD guidance and national administrative practice.

The emerging-market push for stronger tie-breakers

A material driver of recent treaty renegotiation has been the policy push of emerging-market jurisdictions for tie-breaker provisions that are less symmetric than the OECD Model. The push has been motivated by two considerations: first, that the OECD Model tie-breakers, designed in a context of bilateral relations between high-income jurisdictions, do not adequately reflect the position of capital-importing jurisdictions; and second, that the Mutual Agreement Procedure, in its standard form, does not provide a reliable backstop in cases where the contracting states' interests diverge sharply.

Brazil, India, China, and several Latin American jurisdictions have, in their bilateral treaty negotiations of the 2020s, pushed for tie-breakers that include source-state-favouring provisions. The provisions vary across treaties but include, in some cases, automatic source-state residence in cases of dual residence with high-income counterparties; in other cases, expanded substance requirements that disqualify high-income state residence claims by entities lacking economic substance; and in still other cases, an expanded centre of vital interests test that incorporates economic and substance factors more aggressively than the OECD Model.

The Brazil treaty network is the most articulated example. Brazil has signed treaties with the United Kingdom (signed November 2022), Switzerland (signed in May 2018, in force since 2021 and effective for taxable years from January 2022), and Norway (signed in November 2022, in force since December 2024 — replacing the 1980 instrument), each containing tie-breaker provisions that differ from the OECD Model in substantive respects. The provisions reflect Brazil's policy preference for source-state allocation in cases of ambiguity and have been adopted, in modified form, in several of Brazil's other treaty negotiations.

The aggregate effect on the global treaty network is that the OECD Model is increasingly a starting point for negotiation rather than a default outcome. The textual divergence among bilateral treaties, particularly those involving emerging-market jurisdictions, is greater in 2025 than it was in 2010. The practitioner working in the bilateral treaty network must read each instrument as written rather than assuming model conformity.

The Multilateral Instrument and selective adoption

The Multilateral Instrument was opened for signature in 2017 and has, by the end of 2025, been ratified by approximately one hundred jurisdictions. The instrument's principal purpose was to amend pre-2017 bilateral treaties to incorporate selected elements of the OECD Base Erosion and Profit Shifting project, including the corporate tie-breaker change, the principal purpose test, and several other provisions.

The MLI's adoption has been selective in two respects. First, jurisdictions could choose which of the MLI's provisions to adopt and could opt out of others. Second, even where both contracting states adopted the same provision, the provision applies only if both states have notified their adoption and have not made reservations that would prevent the provision from taking effect in their bilateral relationship.

The result is that the MLI's amendments to Article 4 have been adopted in some bilateral relationships and not others. The corporate tie-breaker amendment has been adopted by most major OECD jurisdictions in their bilateral relationships with each other but has not always been adopted in relationships with non-OECD jurisdictions. The principal purpose test has been adopted more uniformly. The cumulative effect is that the MLI has produced a partial harmonisation of Article 4 across the bilateral treaty network, with selective deviations that practitioners must track.

The principal purpose test as residency overlay

The principal purpose test, introduced through the MLI and incorporated in new bilateral treaties, operates as an overlay on Article 4. The provision denies treaty benefits where it is reasonable to conclude that obtaining the benefit was one of the principal purposes of any arrangement or transaction.

The PPT has been applied in cases involving residence determinations where the residence claim itself appeared to be motivated by treaty access. A corporate entity established in a jurisdiction with which the source state has a favourable treaty, where the entity has limited substance and the principal purpose of the establishment was treaty access, may be denied treaty benefits under the PPT even if the entity satisfies Article 4's residence test.

The application of the PPT has been more aggressive in some jurisdictions than others. The Indian and Brazilian administrations have applied the PPT in a series of cases involving conduit-type structures. The European jurisdictions have applied the PPT more selectively. The United States is not a party to the MLI but has incorporated similar concepts into recent bilateral treaties through the limitation-on-benefits provisions that have characterised US treaty practice for decades.

What the practitioner needs to know

The practical guidance that emerges from the post-2017 reformation of Article 4 can be summarised in three points.

First, the OECD Model is increasingly an unreliable proxy for the actual text of any specific bilateral treaty. The treaty must be read as written, with attention to the date of signature, any subsequent amendments, the application of the Multilateral Instrument if applicable, and any bilaterally negotiated deviations from the model.

Second, the corporate residence determination has become procedurally more complex. A corporate entity that is potentially dual-resident under the domestic laws of two jurisdictions cannot rely on a determinate place-of-effective-management test in many bilateral relationships; it must instead engage with a mutual agreement procedure that may take years to resolve. The practical response has been corporate restructuring to ensure unambiguous single-jurisdiction residence, often through changes in management location or in incorporation jurisdiction.

Third, the application of the Article 4 tie-breakers to individual cases has shifted in ways that increase the importance of substance over form. The centre of vital interests test, in particular, is being applied more aggressively to allocate residence to the jurisdiction where the individual's life is actually conducted, rather than to the jurisdiction whose tax position is more favourable. The PPT overlay reinforces this shift in cases where the residence claim itself appears to be tax-motivated.

The trajectory through 2030

The trajectory of Article 4 through the second half of the 2020s is one of continued textual divergence and continued substantive evolution. New bilateral treaties signed in the late 2020s will continue to incorporate the 2017 OECD Model with bilateral modifications. Pre-2017 treaties will continue to be selectively amended through MLI provisions. Emerging-market jurisdictions will continue to push for tie-breakers that better reflect their policy preferences. The PPT and other anti-abuse provisions will continue to be applied as overlays on the residence determination.

The architecture of cross-border residence determination, like the architecture of multinational tax planning more broadly, is being rebuilt around substance and around the active engagement of national tax authorities. The mechanical application of an unchanged model has been replaced by case-by-case assessment under provisions that vary across the network. The practitioner who works in this domain must read each treaty carefully, apply the relevant principles to the specific facts, and engage with the competent authority procedures that are increasingly the resolution mechanism for difficult cases.