Corporate Residence Research Articles

Research on the design process of Shizuoka Shinbun Takamatsu Apartment

AbstractTakamatsu House for the newspaper Shizuoka Shimbun was to be a corporate residence consisting of family and single apartments. The premises are a stone's throw from Totoiseki. The planning for the project took place between 1955 and 1956. The Tange Laboratory was in charge of the design. However, the project was never realized due to the inability to resolve technical issues. This study will clarify the design process for Takamatsu House at that time, and while doing so, we will consider the influence of the public housing standard design, the relationship with the 1960 plan for Tokyo.

Restoring the Place of Effective Management as a Tiebreaker Rule for Corporate Residence

Restoring the Place of Effective Management as a Tiebreaker Rule for Corporate Residence

Abuse, Shell Entities and Right of Establishment: A Plea for Refocusing Current Proposals and Achieving Deeper Coordination within the Internal Market

This article aims at identifying the most relevant shortcomings of any initiative of fighting against abuse of the right of establishment on the basis of a priori set substance indicators. It does so by reference to the Unshell Directive proposal against the broader background of the need to ensure consistency between secondary and primary EU law. In the process, it provides constructive criticism on possible paths that could be explored to align possible rules with underlying aims, highlighting the need to distinguish the addressing of shell entities from issues of corporate residency and transfer pricing. It also addresses issues concerning legislative technique, such as the need for greater fine-tuning when cross-referencing pre-existing EU secondary law and on the merits of the tenuous distinction between gateways and substance indicators. From a substantive viewpoint, it then examines each gateway and indicator in depth, highlighting possible loopholes and criticalities, also in conjunction with the foreseen exclusions. The article then focuses on an assessment, essentially based on the primary law framework in light of the case law of the Court of Justice of the European Union (ECJ), of the system of presumptions envisaged by the proposal and on the tax consequences of an entity being labelled as a shell. The feedback also raises the issue of the multiplication of reporting requirements, suggesting the aggregation of all of them in a single modular instrument, which could be used – across the internal market – each time a taxpayer is required to report tax relevant data which are not directly related to a specific income tax return. Scrutiny is also devoted to the possibility of requesting tax audits and the potential issues that may arise from this practice if not reconciled with the broader DAC framework. Finally, the article raises questions from the perspective of the safeguard of fundamental rights in connection with the envisaged “minimum penalty” encompassed by the proposal.

Corporate Tax Residency in Tanzania: A Critique of the Judgement of the Court of Appeal in African Barrick Gold Plc Vs. Commissioner General and Tanzania Revenue Authority, Civil Appeal No. 144 of 2018

Corporate Tax Residency in Tanzania: A Critique of the Judgement of the Court of Appeal in African Barrick Gold Plc Vs. Commissioner General and Tanzania Revenue Authority, Civil Appeal No. 144 of 2018

Corporate Residency – Central v. Effective Management

Residency of foreign companies has never been under so much scrutiny and review in Australia until the release of the report by the Board of Taxation in 2019. The recommendations made by the Board have not been acted upon up to now, but will be a subject of much debate and conflicting opinion in the near future, especially because of the pandemic restricting travel of senior officers of companies and the changed company practices. The consequences that follow if a company is considered as resident in Australia are numerous and therefore the criteria for residence will form a significant consideration when determining the appropriate structuring of foreign incorporated companies wishing to do business in Australia. The statutory provisions relating to corporate residency have been in ITAA 1936 for quite some time and all interested parties are in agreement that the law relating to residence of foreign incorporated companies requires review to suit the current and fast evolving environment of corporate mobility and management, especially in light of the role played by online business practices, such as project management and key personnel participation in business.

Russia in Global Digital Tax Reform: Together or Apart?

The goal of this research is to develop policy proposals for a reform of Russian corporate income tax legislation. The paper reviews and analyses international and Russian tax policy context and ongoing reforms that aim to address the challenges of the digital economy. It is shown that different states have been implementing unilateral measures in their respective tax legislation due to the absence of global consensus about coordinated reform. This leads to increasing complexity and uncertainty for digital businesses and tax administrations. Considering that the digital tax reform agenda is highly relevant for Russia for fiscal reasons, several ideas for developing Russian tax rules in this context are proposed, including amendments to the concept of corporate residence, introducing a digital services tax as an interim measure, amending the mechanism of withholding tax on royalties and clarifying the tax characterisation of supplies in digital form. This article was prepared as part of research by state assignment at the Russian Academy of National Economy and Public Administration

Country Note: The Newly Revised Israel–Japan Double Taxation Convention: The MLI’S Impacts And Implications

The Israel–Japan DTC has now been amended in accordance with the mandates set forth by the OECD’s ‘Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting’ (MLI) as a consequence of the fact that both Israel and Japan are signatories to that agreement. The revisions to this tax treaty have found expression in a number of contexts, each being potentially outcome determinative as to the profitability – and even the viability – of a commercial enterprise or transaction conducted between the two Contracting States. Albeit the MLI revisions adopted in this treaty are common to many of the revised DTCs, the potential impact for Japanese and Israeli investors are particularly sensitive in light of the revisions introduced vis-à-vis the provisions of the previous treaty and upon which large scale business planning was carried out. Among the revisions with which the business community will have to contend are, inter alia, the mechanism for resolving dual corporate residence (previously the treaty had a place of incorporation test), the expanded scope of the permanent establishment threshold test and the introduction of the Principal Purposes Test (PPT) into a treaty which previously contained no broad anti-avoidance provision. Israel, Japan, new MLI treaty, revised DTC, Israel MLI, Japan MLI, revised treaty.

Is Incorporation the Solution to the Enigma of Corporate Tax Residency for International Tax Purposes?

Incorporation of a company for testing residency—if applied uniformly—is likely the best and most accurate way to reflect corporate residency for tax purposes. However, it does not always reflect economic reality. There is not a consensus on what the best approach is. The Organization for Economic Cooperation and Development (“OECD”) countries overwhelmingly use three tests for residency: incorporation, central management and control, and domicile. Indeed, a court in the United States or other jurisdictions may often ask if tax-avoidance motives exist when incorporation occurs in one jurisdiction and central management and control occurs in another. This Article follows the 2017 Tax Cuts and Jobs Act on many international tax provisions that caused a shift in thinking at both the U.S. level, and at the international level in terms of deciding what formulations would be the best way to ensure proper taxation while promoting horizontal and vertical equity. The genesis of this Article is a response and critique of an article on the same subject by the same author: Charles Edward Andrew Lincoln IV, Is Incorporation Really Better Than Central Management and Control for Testing Corporate Residency? An Answer to Corporate Tax Evasion and Inversion, 43 Ohio N.U. L. Rev. 359 (2017). The author now critiques the point of that article and comes to a different conclusion based on different criteria: specifically, new case law, Musgrave’s economic theory of accretion of wealth, and the importance of substance-over-form doctrines.

De Beers Consolidated Mines Ltd V Howe (1906) Corporate Residence: An Early Attempt at European Harmonisation

This book chapter assesses the 1906 landmark decision by the Judicial Committee of the House of Lords in case of De Beers Consolidated Mines Ltd v Howe (Surveyor of Taxes). The case represents a remarkable instance of a revenue statute leaving a foundational concept – that of the ‘residence’ of companies – for determination by judges. In doing so, the House of Lords based its decision entirely upon the case law of lower courts, one case drawing on the celebrated work of the German jurist Carl Friederich von Savigny. The chapter shares findings of research performed about the intellectual origins of the judicial test for corporate tax residence (‘central management and control’) that has caused De Beers to be viewed as a landmark decision in countries sharing a legal tradition with the UK. The parallels between Savigny’s work on corporate domicile and the development of a judicial test in England for tax residence are explained, as well as the difficulties that arose in the application of the test after the process of transplantation begun. The decision in De Beers is less well known for the unique historical context and facts that gave rise to the dispute before the English courts. The chapter contextualizes the decision with reference to the factual background to the disputes, as well as the aftermath of the decision since it caused the De Beers company to be subject to double taxation in the UK and the Cape Colony (South Africa). The dramatis personae were no less than Cecil John Rhodes, chairman of De Beers and Prime Minister of the Cape Colony where the De Beers diamond mines were situated, and the Rothschild conglomerate who financed its operations and who were major shareholders that assisted in the establishment of a diamond syndicate in London in control of the global market. The House of Lords famously decided that the company, incorporated in the Cape Colony, was resident in London because it was centrally managed and controlled by its London directors, despite all of its diamond mining business being conducted at the Cape where Rhodes was mostly based. Research conducted in the archives of the House of Lords and private archives of the company revealed incomplete facts before the English courts concerning the South African directors, especially Rhodes, which arguably may have altered the outcome and the impact of the decision on others. The chapter makes the point that the decision by the House of Lords ought to be appreciated and evaluated in light of the uniqueness of the company.

The Role of Corporate Residence in Tax Matters and its Relationship with the Provision of Dividend Relief: A Comparative Analysis between the UK and the US Tax Systems

The aim of this paper is to illustrate the main features and issues related to the concept of corporate residence, showing to what extent it can have an impact on the provision of dividend relief. To this purpose, I will use the examples of the UK and the US, analysing the concept of residence and explaining why some emerging tax theories are trying to abandon it. Then, I will study the relevant connection between the concept of corporate residence and the provision of dividend relief. Residence is related to the elements of the legal autonomy of corporations. However, this separation of corporations from their shareholders is the main cause for economic double taxation and for other distortions related to corporate income taxes that need to be solved by dividend relief. Abandoning the concept of residence and attributing the corporate profit directly to shareholders would make the use of dividend relief unnecessary. Therefore, the advantage of relating the corporation to the place in which taxes can be enforced is obtained at the cost of the distortions created by corporate taxation and the dividend relief systems.

The Myth of Corporate Tax Residence

The issue of corporate residence has recently attracted a great deal of attention in both the popular press and in academic discourse, primarily because of the phenomenon of corporate inversions. The consensus among commentators is that the root of the problem is a flawed definition of corporate residence, and they have therefore proposed replacing the current definition, which relies upon place of incorporation, with another that relies upon control and management, home office, customer base, source of income, or the residence of shareholders. The thesis of this article is that the concept of tax residence is inapplicable to corporations. Residence in tax law delineates the boundaries of distributive justice, and whereas corporations cannot be parties to a scheme of distributive justice, corporate residence is a misnomer. The incongruity of corporate residence along with the fact that residence is a fundamental concept in international taxation is one reason that the current international tax regime has proven unviable. The article then goes on to describe in broad outline an international corporate tax regime that avoids the problem of corporate residence by focusing on shareholders instead of on corporations.

Directions for International Tax Reform, Testimony before the U.S. Senate Committee on Finance Hearing on International Tax Reform

Testimony before the U.S. Senate Committee on Finance Hearing on International Tax Reform, October 3, 2017. Objectives for Tax Reform: Tax reform should maintain or enhance our tax system’s current level of progressivity in distributing tax burdens and benefits. The most significant social welfare fact today is that the income of middle and lower income workers has stagnated in recent decades and a disproportionate share of income growth has accrued to those with highest incomes — the top 1%. While we have recovered from the recession and middle and lower income workers have made some gains, the disparity between high-income and middle- and lower-income has grown substantially and income mobility is more constrained than for prior generations. The taxation of cross-border income of U.S. MNCs should be analyzed under the same fairness standards that apply to any other income. In particular, as I discuss later in this testimony, a reduced “holiday” tax rate on U.S. MNCs’ pre-effective date offshore earnings will overwhelmingly benefit high-income Americans (and foreigners) and is not justified on any policy ground. Its sole purpose is to provide a one-time source of revenue that disguises the future revenue loss from shifting to a weak territorial system. Tax reform should be revenue neutral or increase net revenues. The central importance of our tax system to national competitiveness and growth is to fund public goods, such as education, basic research, infrastructure, healthcare and income security transfers, and national defense. These government services and capital expenditures support a high standard of living, income security, and physical security for all Americans. It is the job of the tax system to raise the necessary revenue to fund needed public expenditure and not add trillions to the national debt as proposed in the Senate Budget proposal and the GOP Tax Reform Plan. Objectives for International Tax Reform: International tax reform should maintain or increase, not reduce, the aggregate tax on U.S. MNCs’ foreign income. There is no policy justification to advantage international business income of multinational corporations (MNCs) beyond allowing a credit for foreign income taxes. Moreover, evidence does not support claims that U.S. MNCs are overtaxed or are non-competitive as a consequence of U.S. tax rules. The U.S. Treasury Department found that the average tax paid by U.S. companies from 2007–2011 on their book earnings plus foreign dividends was 22%. The most recent publicly available Statistics of Income data for 2012 shows that foreign subsidiaries of U.S. MNCs in the aggregate paid an average foreign tax rate of 12%. Foreign income should be taxed currently or, if that is not politically feasible, under a per country minimum tax regime that is effective in discouraging tax avoidance through transfer pricing and related techniques that shift and indirectly erode the U.S. tax base. International tax reform should assure that the tax rules for foreign multinational companies on U.S. business activity does not provide them an advantage in relation to U.S. companies. Tax reform should undertake a fundamental review of U.S. source taxation of cross-border activity having a U.S. destination including remote digital sales into the United States. In addition, tax reform should strengthen U.S. corporate residence and earnings stripping rules. Taxation of international portfolio income should be fundamentally re-examined. Under current rules, there are U.S. tax advantages for portfolio investment by U.S. investors in foreign stock over domestic stock. Similarly, foreign pension funds that benefit principally foreign workers receive exemptions and reliefs from U.S. tax that are not reciprocated by foreign countries on U.S. pension funds benefitting U.S. workers. A fundamental tax reform effort should re-examine from scratch the U.S. rules for taxing cross-border portfolio income, however, the treatment of portfolio income is a subject for development on another occasion.

The Future of Corporate Residency

Globalization and tax competition challenge residence base taxation of corporations, by pushing states to offer competitive “deals” in order to attract corporate-residents. This paper will describe this process and ask whether states could regain their power to tax corporations on a residence-basis through multilateral cooperation. It will argue that the history of cooperation on international tax among states raises some serious doubts, not only regarding the attainability and sustainability of such cooperation, but also regarding its desirability. The paper will start with a very brief review of the process of corporations gaining independence from the state turning them from chartered organizations reigned by the political institutions of the state into independent market actors. It will then consider the seemingly inverse process of the rationale for income taxation shifting from a market based logic of benefit taxation to a political rationale of taxation based on membership in (and commitment to) a political community. Both these processes burden the ability of states to benefit from the profits of corporations. Globalization and tax competition, the paper goes on to argue, present further challenges for the taxation of corporations. Tax competition not only marketizes the relationships between states and their corporate-taxpayers, but also fragmentizes it — allowing taxpayers to pick and choose among various features of the different jurisdictions, thus seriously undermining the ability of states to collect taxes from such MNEs. The paper will conclude by discussing whether cooperation among states could offer a solution, arguing that such cooperation is not only extremely hard to attain and sustain, but also not necessarily desirable.

US Supreme Court clarifies definition of corporate residence for purpose of patent venue

TC Heartland LLC v Kraft Foods Group Brands LLC, 581 US __ (2017), Supreme Court of the United States, 22 May 2017 The US Supreme Court unanimously held that ‘a domestic corporation “resides” only in its state of incorporation for purposes of the patent venue statute.’ The court reversed the decision of the United States Court of Appeals for the Federal Circuit, rejecting a line of authority which dates back to at least 1990 in VE Holding Corp. v Johnson Gas Appliance Co., 917 F.2d 1574 (Fed. Cir. 1990), in which the Federal Circuit held that the statutory definition of corporate residence found in the general venue statute is incorporated into the patent venue statute. The patent venue statute, 28 USC §1400(b), provides: [a]ny civil action for patent infringement may be brought in the judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business.

Why Corporate Taxation Should Mean Source Taxation: A Response to the OECD's Actions against Base Erosion and Profit Shifting

It is widespread practice around the world that corporate entities pay taxes to the country where they are formally registered and to the country in whose territory they generate income. While the former is generally known as the “country of residence” the latter is usually referred to as the “country of source”. This article questions separate taxation based on this distinction between the country of residence and the country of source. It argues for a departure from the traditional international allocation of the right to tax corporate income and suggests that a corporate entity should instead pay income tax exclusively to the countries in which it has relevant business activities. In other words, this article advocates a “source-based corporate income tax”, meaning the global allocation of corporate income based on the source of income. Moreover, in examining the question of where business activities of multinational corporations effectively take place, this article describes criteria for determining source countries. Furthermore, it offers a method for formulary apportionment of corporate income between those countries in which a given multinational corporation generates income. The article argues that source taxation of corporate income would be coherent with the economic nature of corporate income taxation. Source taxation of corporate income would also make the arbitrary concept of corporate residence irrelevant, and it would allow the outdated legal concept of permanent establishment to be abolished. This article takes an interdisciplinary approach to argue from both legal and economic perspectives. It adds to the body of literature that discusses how countries should tax corporate entities doing business across national borders. It also contributes to the ongoing debate about the OECD’s recent controversial efforts to prevent corporations shifting profits between countries to minimize their exposure to national tax systems (base erosion and profit sharing, or BEPS).

Central Management and Control and the Bywater Case: A Quantum Leap or Clarification of the Status Quo?

In this article, the author examines the outcome in the recent Australian High Court case, Bywater Investments Ltd v. Commissioner of Taxation; Hua Wang Bank Berhad v. Commissioner of Taxation, and contrasts it with earlier court decisions on the meaning of central management and control to ascertain whether the Bywater decision is a major step forward in jurisprudence determining the place of corporate residence, or merely a reaffirmation of the approach taken in the earlier cases. The article also canvasses evidentiary matters concerning the independence of board decision making and the meaning of carrying on a business in the context of passive investment entities.

The Indian Budget 2017 – Is It BEPS Compliant?

In this article, the authors canvass and critique measures announced in the 2017 Budget, which are designed to bring aspects of Indian domestic tax law into line with the OECD BEPS initiatives. These include the introduction of thin capitalization rules and transfer pricing secondary adjustments. The article also examines the government’s new place of effective management test of corporate residence and modifications to the rules on the taxation of gains from the indirect transfer of assets situated in India.

Location of Board Meetings Insufficient To Determine Place of Central Management and Control

This case note explains the High Court of Australia’s November 2016 decision in Bywater Investments Limited v. Commissioner of Taxation; Hua Wang Bank Berhad v. Commissioner of Taxation, concerning the application of the central management and control test to determine corporate residence in Australia. It also canvasses the salient points of the earlier decisions of the Federal Court of Australia and the Full Federal Court of Australia, which were upheld by the High Court.

Why Corporate Taxation Means Source Taxation: A Response to the OECD's Actions Against Base Erosion and Profit Shifting

It is widespread practice around the world that corporate entities pay taxes to the country where they are formally registered and to the country in whose territory they have a permanent establishment. While the former is generally known as the ‘country-of-residence’ the latter is usually referred to as the ‘country-of-source’. This article questions separate taxation based on this distinction between the country-of-residence and the country-of-source. It argues for a departure from the traditional international allocation of the right to tax corporate income and suggests that a corporate entity should instead pay income tax exclusively to the countries in which it has relevant business activities. Moreover, in examining the question of where business activities of multinational corporations effectively take place, this article describes criteria for determining source countries. Furthermore, it offers a method for formulary apportionment of corporate income between those countries in which a given multinational corporation generates income. The article argues that source taxation of corporate income would be coherent with the economic nature of corporate income taxation. Source taxation of corporate income would also make the arbitrary concept of corporate residence irrelevant, and it would allow the outdated legal concept of permanent establishment to be abolished.This article takes an interdisciplinary approach to argue from both legal and economic perspectives. It adds to the body of literature that discusses how countries should tax corporate entities doing business across national borders. It also contributes to the ongoing debate about the OECD’s recent controversial efforts to prevent corporations shifting profits between countries to minimize their exposure to national tax systems (base erosion and profit sharing, or BEPS).

Controlled Foreign Company Legislation, Corporate Residence and Anti-Hybrid Arrangement Rules

An assumption of the OECD Base Erosion and Profit Shifting initiative is that a holistic approach should be adopted. This article suggests that the reshaping of controlled foreign company rules should be coordinated with changes to corporate tax residence and anti-hybrid arrangement rules.