The Disjunction Between Corporate Residence and Corporate Taxation: Is Improvement Possible?

In this article, the author analyzes the concept of corporate residence, with particular reference to the law in the United Kingdom and Canada. Accepting that the taxation of corporations has some justification, there is nonetheless a disjunction between meaningful residence-based taxation and current definitions of corporate residence in domestic law and tax treaties. This disjunction occurs because the various legal meanings ascribed to corporate residence require little in the way of economic attachment to the purported home state. The author begins with a brief review of the phenomenon of tax-driven corporate mobility, followed by a summary of government responses to corporate mobility. In the main body of the article, he argues that residence concepts that were originally intended to reflect substantial activities of corporate management were largely eclipsed by legislated incorporation tests in the United Kingdom and Canada, and were otherwise devitalized by judicial interpretations of "central management and control" when applied to multinational enterprises. The author then argues that although the treaty concept of "place of effective management" has promise because it could denote real and substantive management, to date this interpretation has been eschewed by higher courts, at least in the case of corporations. Recent cases on the residence of trusts are noted because they illustrate a contrasting, and perhaps preferable, approach to entity residence. Given that current formulations of corporate residence appear to be deficient, the author makes tentative suggestions regarding how corporate residence definitions could be improved to focus on the objective reality or unreality of corporate establishment.