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

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