Improving the Measurement of Tax Residence: Implications for Research on Corporate Taxation

51 Pages Posted: 7 Mar 2022 Last revised: 20 Jun 2022

See all articles by Jean-Marie Meier

Jean-Marie Meier

University of Texas at Dallas

Jake Smith

University of Texas at Dallas - School of Management - Department of Finance & Managerial Economics

Date Written: February 15, 2022

Abstract

We highlight an opportunity for improved measurement of a key data item in corporate tax research; a firm’s tax residence or “tax citizenship.” Some countries define tax residence based on a firm’s location of incorporation, some on a firm’s location of headquarters, and some consider both locations. Because no data source exists that provides information on firms’ tax residence, studies typically apply a uniform assignment of either the location of incorporation, headquarters, or center of business activity. We use a novel algorithm that embeds the residency laws of 150 countries to accurately assign tax residence. We reassign the tax residence of a considerable fraction of firms relative to standard proxies, and provide evidence that reassignment significantly affects inferences. For instance, for cross-border mergers and acquisitions with a US acquiror, 16% of the deal value involves an acquiror that is reassigned. Moreover, reassigned firms are systematically different from other firms along several dimensions, including effective tax rates.

Keywords: Corporate taxation, tax residence, tax law, mergers and acquisitions, tax havens

JEL Classification: H25, C81, H73, G34, K34, K33

Suggested Citation

Meier, Jean-Marie and Smith, Jake, Improving the Measurement of Tax Residence: Implications for Research on Corporate Taxation (February 15, 2022). Available at SSRN: https://ssrn.com/abstract=4035673 or http://dx.doi.org/10.2139/ssrn.4035673

Jean-Marie Meier

University of Texas at Dallas ( email )

Jindal School of Management
800 W. Campbell Road
Richardson, TX 75080
United States

HOME PAGE: http://www.jean-mariemeier.com/

Jake Smith (Contact Author)

University of Texas at Dallas - School of Management - Department of Finance & Managerial Economics ( email )

800 W Campbell Rd
Richardson, TX 75080
United States

HOME PAGE: http://jakesmith.com

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