The Function of Corporate Tax-Residence in Territorial Systems
28 Pages Posted: 16 Jul 2014 Last revised: 17 Jul 2020
Date Written: September 27, 2014
This Essay explains the functional importance of corporate tax-residence determination
in territorial systems. I differentiate between “positive” and “negative” functionalities of corporate tax-residence in territorial systems. Under a positive approach, corporate tax-residence positively points to the source of income earned by the corporation. Thus, corporate taxes serve as a proxy to source taxation. While the positive function had historical merit, it is currently obsolete. Under a negative approach, corporate tax-residence is only relevant to the extent it prevents income from being sourced to a jurisdiction in which income could not have possibly been generated. As such, residence determination serves as an instrument to prevent income shifting and base erosion. I suggest that this is the correct role of residence determination in the current environment.
Keywords: International Tax Reform; Territorial Taxation; Worldwide Taxation; Corporate Tax; Tax History; Comparative Taxation; Corporate Tax-Residence
JEL Classification: E62, H23, H25, H29, K34
Suggested Citation: Suggested Citation