Page 120 - Special Topic Session (STS) - Volume 4

STS570 Mary Everett et al.
show up in the customs data for the island. However, “residence” is a legal
concept denoting the relationship between an entity and a location. For a
person, travelling through another country does not make the person a
resident of that country. For a firm, residence is defined as “the economic
territory with which it has the strongest connection, expressed as its centre of
2
predominant economic interest”. But a firm resident on island A can operate
elsewhere. For example, it could enter into a contract manufacturing
agreement with a firm in island B, and sell the output in island C. The good is
shipped from B to C, and never touches the shores of island A. The sale would
nevertheless be counted as an export of island A and would enter its trade and
GDP statistics. Island A’s GDP would go up even if no workers are employed
on the island.
Closely related to the notion of residence is that of domicile, which
indicates greater permanence. For a person, domicile is a legal concept similar
to residence, but which carries additional implications as a place of origin and
permanent place of residence. For firms, the term is often used to denote the
location of the headquarters. However, there are far-reaching implications
from the designation of a particular location as its domicile, as the firm’s
relationship with its subsidiaries, branches, offices and subcontractors all make
reference to the domicile. When a firm moves its domicile, a cascade of other
changes follow. The firm’s place in the world undergoes fundamental
alterations, as its relationship with other jurisdictions is rearranged. The
redomiciling of a firm is not just a relabeling but involves a long list of changes
in bilateral relationships between jurisdictions that flow from the alteration in
domicile.
In a global context, we can think of the above two perspectives, the
residency view and the domicile view, as two distinct but integrated
frameworks from an accounting, statistical, legal and regulatory angle. In the
international statistical framework, the islands view allocates economic agents
to the country in which they are deemed to reside. An alternative approach is
to take a consolidated view, which assigns economic entities to the country of
headquarters of the parent institution (Avdjiev et al (2016), Bénétrix et al
(2017), McCauley et al (2017)). This latter approach is, therefore, more closely
3
aligned with notion of domicile. In a consolidated framework, the entire

2 IMF (2009, p 70). According to the international statistical framework, residency is expressed
as the centre of predominant economic interest. Each institutional unit is a resident of only one
economic territory. An institutional unit is defined as households, corporations, non-profit
institutions, government units, legal or social entities recognised by law or society or other
entities that may own or control them.
3 Strictly speaking, there are several different ways to consolidate group level information,
depending on whether one assumes a supervisory, statistical or business accounting point of
view (IAG (2015)).
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