On the relevance of double tax treaties

Petkova, Kunka and Stasio, Andrzej and Zagler, Martin ORCID: https://orcid.org/0000-0003-0863-7375 (2018) On the relevance of double tax treaties. WU International Taxation Research Paper Series, 2018-05. WU Vienna University of Economics and Business, Universität Wien, Vienna.

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Abstract

This paper investigates the effects of double tax treaties (DTTs) on foreign direct investment (FDI) after controlling for their relevance in the presence of treaty shopping. DTTs cannot be considered a bilateral issue, but must be viewed as a network, since FDI can flow from home to host country through one or more conduit countries. By accounting for treaty shopping, we calculate the shortest (i.e. the cheapest) tax distance between any two countries allowing the corporate income to be channelled through intermediate jurisdictions. We differentiate between relevant and neutral DTTs - i.e. tax treaties that offer investors a financial advantage - and irrelevant DTTs and use these data to derive two important results. First, only relevant and neutral tax treaties increase bilateral FDI, whereas irrelevant DTTs do not. We can quantify the increase of FDI due to a relvant DTT at around 22%. Second, significant tax reductions due to treaty benefits will lead to an increase in FDI.

Item Type: Paper
Additional Information: Editors: Eva Eberhartinger, Michael Lang, Rupert Sausgruber and Martin Zagler (Vienna University of Economics and Business), and Erich Kirchler (University of Vienna)
Keywords: Double Tax Treaties, Treaty Shopping, Treaty Network, Foreign Direct Investment, Network Analysis
Classification Codes: JEL F21, F23, F53, H25, H26, H73, H87, K34
Depositing User: ePub Administrator
Date Deposited: 20 Feb 2018 09:15
Last Modified: 31 Oct 2019 13:08
FIDES Link: https://bach.wu.ac.at/d/research/results/85912/
URI: https://epub.wu.ac.at/id/eprint/6071

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