Skip to main content

Saint Louis University School of Law Header Logo Center

Menu Search

The Elusive Definition of Corporate Tax Residence

The Elusive Definition of Corporate Tax Residence

David Elkins*

The full text of this article can be found in PDF form here.


Because domestic corporations are subject to tax on their worldwide income while foreign corporations are subject to tax only on their U.S.-source income, corporate residence is one of the more important issues in the field of international taxation. Under current U.S. law, and subject to a single exception designed to inhibit the expatriation of domestic corporations via inversion, a corporation’s residence is a function of its place of incorporation (“POI”): a corporation created or organized under the law of any U.S. state is domestic, while a corporation created or organized under the law of any other jurisdiction is foreign. Other countries tend to look to the place where the corporation is controlled or managed—common terms of usage include “central management and control” (“CMC”) and “place of effective management”—to determine corporate residence. Some commentators have suggested that the United States follow suit; others have proposed alternative tests, among them the corporation’s customer base, its source of income, the stock exchange on which the corporation’s shares are traded, or the country of residence of its shareholders.

Although the literature has extensively discussed the issue of corporate 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. In this Article, the terms “test” and “criterion” will refer, respectively, to a proposed definition of corporate residence and to a principle used to evaluate definitions.

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 will summarize the findings and offer some speculation as to why an acceptable definition of corporate residence is so elusive.

Read full article

*Professor of Law, Netanya School of Law, Israel. Ph.D., University of Bar-Ilan 1999; LL.M., University of Bar-Ilan 1992; LL.B., Hebrew University of Jerusalem 1982.