The Study On “Dual-Residence Enterprise” In International Tax Law

The concept of “resident enterprise” is critical important in international taxation law.In a country which adopts worldwide taxation system,the resident enterprise shall be fully liable to taxation,i.e.it shall pay tax for all income derived from all over the world to its resident country,no matter whether the income is derived from its territory.However,because different connections/criteria are adopted by different jurisdictions regarding the judgement of the “resident enterprise”,some use the formal criteria,such as incorporation and registration,some use factual criteria,like place of effective management;it causes a lot of problems in practice.Some enterprises are recognized as the resident enterprise of different jurisdictions at the same time.On the one hand,the income obtained by dual-resident enterprises may be taxed twice or even more times,and on the other hand,dual-resident enterprises may get extra tax interests,such as enjoying favorable treaty treatments,deducting loss in more than one resident countries.Nowadays,the most common way to resolve the dual-resident enterprises issue is to use the tax treaties,i.e.the Article 4.3 of the OECD Model Tax Convention on Income and on Capital(“OECD Model Convention”)– the place of effective management criteria,to determine the sole resident country for the dual-resident enterprise.Furthermore,the commentary of OECD Model Convention provides a substitute article for its member countries,i.e.the case-by-case approach/mutual agreement method.The mutual agreement method is the most common way adopted in China tax treaties to resolve the dual-resident enterprise conflicts,then is the “place of effective management” criteria,and there are many treaties combined the above methods.While the economic data shall be the critical factor to determine which method shall be adopted to resolve such conflicts.Moreover,with the development of digital economy and the reform of modern corporate system,the tax treaty negotiation experts shall consider the limitations of “place of effective management” criteria and mutual agreement method,to conclude a suitable article.China shall continue to improve its domestic tax law,to make a comprehensive commentary and a detailed guideline regarding the “place of effective management” criteria,and to make a clear statement in domestic tax law and tax treaties that the enterprises can not get tax benefits if that are the main purposes of an enterprise to become the dual-resident enterprise.Furthermore,China shall timely update its tax treaties,adopt the purpose test article and limitation of benefits article in tax treaties,and make a China Model Convention.At the same time,China shall cooperate with other countries to neutralize the dual-residence enterprise conflicts,and protect the tax base of China.