Grundel L.P. Criteria of Tax Residence: OECD Experience

Abstract: The subject of the research is conflicts-of-law rules for determining the tax residence of companies. The object of the research are the criteria for determining tax residence of companies. The article also focuses on the fact that tax residence of legal entities is determined independently by each state on the basis of one or more criteria. The author describes three groups of connecting factors for the determination of tax residence: 1) connecting factors caused by the creation of a legal entity; 2) connecting factors due to the internal structure of the company's management and decision-making; 3) The connecting factors caused by the activities of a legal entity. Variability of the first group is associated with the state registration of the legal entity. The second group of connecting factors is related to the structure of the internal management and decision-making of the legal entity. The third criterion is preferred according to the OECD Convention for determining tax residence in the event of a dispute between several states regarding a particular legal entity. In this paper, using econometric and statistical methods the author has studied theoretical and practical development of the current legislation issued by tax administrations of other countries, particularly the establishment of the basic principles for determining the residence of companies, criteria for determining residence depending on groups of connecting factors. The author analyzes the characteristics of criterion evaluations to determine tax residence, namely, place of management, place of central management and control, location of the head office, place of actual decision-making. Regardless of which type of management activity is recognized legally relevant by the state, law enforcers have to deal with three aspects: (1) identification of the meaning of management actions; (2) geographic location of activities; (3) determination of a number of persons engaged in this activity. Also, "control" and "influence" should be defined as two different concepts. 

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