The Elusive Definition of Corporate Tax Residence

Abstract

Although the literature has extensively discussed the issue of corporation residence, it has paid little attention to the terms of reference of the debate. A typical argument will take the following form: the law should adopt Definition D as appropriate because it closely conforms to Principle P. However, such an argument is unpersuasive unless it also provides a convincing explanation for why P is the appropriate principle. Without such an explanation, the fact that D closely conforms to P is a brute fact with no normative value. Nonetheless, the literature generally ignores this first, crucial step. In most cases, it examines tests of corporate residence without a cogent justification for the principles by which it evaluates those tests.

This Article will attempt to move the discourse to a more theoretical level by focusing attention not on the definitions themselves but rather on the criteria upon which commentators rely, either explicitly or implicitly, when considering the merits of particular definitions of corporate residence.

A survey of the literature reveals four criteria for evaluating tests of corporate residence. Part I considers the three most commonly relied upon criteria: manipulability, clarity, and benefit. It argues that all three are bereft of relevant normative content. Consequently, the fact that a particular test conforms to one or more of these criteria does not constitute adequate grounds for its adoption.

The fourth criterion, and the newest member of the pantheon, is purposiveness. As opposed to the more traditional criteria, purposiveness does have normative value: a demonstration that a proposed test conforms to this criterion would constitute a reasonable argument in support of that test. Part II describes this criterion and explores whether it is possible to formulate a test that conforms to it. The answer is that it does not appear possible to do so.

The fact that no test appears capable of satisfying the demands of the only criterion with normative value suggests that the quest for an appropriate definition of corporate residence may be a futile endeavor. The Conclusion summarizes the findings and offer some speculation as to why an acceptable definition of corporate residence is so elusive.

Keywords: tax, taxation, international, international taxation, corporation, corporate taxation, residence, corporate residence, place of incorporation, control, management, control and management, central management and control

JEL Classification: F38, K34, H20, H25