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

35 Pages Posted: 7 Mar 2022 Last revised: 25 Apr 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. 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 assignments in the literature. Reassigned firms are systematically different from other firms along several dimensions, including effective tax rates. We 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 or target that is reassigned.

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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