Defending Worldwide Taxation with a Shareholder-Based Definition of Corporate Residence

35 Pages Posted: 5 Mar 2017 Last revised: 29 Aug 2017

See all articles by J. Clifton Fleming

J. Clifton Fleming

Brigham Young University - J. Reuben Clark Law School

Robert J. Peroni

University of Texas at Austin - School of Law

Stephen E. Shay

Boston College Law School

Date Written: February 6, 2017

Abstract

This Article argues that a principled, efficient, and practical definition of corporate residence is necessary even if some form of corporate integration is adopted, and that such a definition is a key element in designing either a real worldwide or a territorial income tax system as well as a potential restraint on the inversion phenomenon. The Article proposes that the United States adopt a shareholder-based definition of corporate residence that is structured as follows:

1. A foreign corporation is a U.S. tax resident for any year if fifty percent or more of its shares, determined by vote or value, was beneficially owned by U.S. residents on the last day of the immediately preceding year (or was the average ownership for the year by U.S. residents as determined by averaging U.S. resident ownership on the last day of each quarter of the preceding year). A foreign corporation presumptively satisfies this test if any class of its shares is regularly traded in one or more U.S. public capital markets or is marketed to U.S. persons.

2. This presumption can be rebutted by the foreign corporation showing that U.S. resident beneficial ownership of its shares is below the fifty-percent threshold.

3. The presumption can be overcome in the same way by the IRS if it encounters cases where a foreign corporation that is actually foreign-owned lists a class of shares on a U.S. exchange in order to achieve U.S. resident status for tax-avoidance reasons.

This proposed shareholder-ownership test, however, would be an alternate definition; a corporation would continue to be a U.S. tax resident if it were formed under the law of a U.S. jurisdiction. Finally, this Article examines the common objections to a shareholder-based definition of corporate residence and explains why those objections are unpersuasive.

Keywords: Income Taxation, International Taxation, International Income Taxation, Residence, Corporate Residence

Suggested Citation

Fleming, J. Clifton and Peroni, Robert Joseph and Shay, Stephen E., Defending Worldwide Taxation with a Shareholder-Based Definition of Corporate Residence (February 6, 2017). Brigham Young University Law Review, Vol. 2016, No. 6, 2017, U of Texas Law, Public Law Research Paper No. 663, BYU Law Research Paper No. 17-20, Available at SSRN: https://ssrn.com/abstract=2912395

J. Clifton Fleming (Contact Author)

Brigham Young University - J. Reuben Clark Law School ( email )

430 JRCB
Brigham Young University
Provo, UT 84602
United States

Robert Joseph Peroni

University of Texas at Austin - School of Law ( email )

727 East Dean Keeton Street
Austin, TX 78705
United States

Stephen E. Shay

Boston College Law School ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

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