Quotation Petkova, Kunka, Stasio, Andrzej, Zagler, Martin. 2018. On the relevance of double tax treaties in the presence of treaty shopping. WU International Taxation Research Paper Series No. 2018-05.


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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 relevant DTT at around 22%. Second, significant tax reductions due to treaty benefits will lead to an increase in FDI.

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Publication's profile

Status of publication Published
Affiliation WU
Type of publication Working/discussion paper, preprint
Language English
Title On the relevance of double tax treaties in the presence of treaty shopping
Title of whole publication WU International Taxation Research Paper Series No. 2018-05
Year 2018
URL http://dx.doi.org/10.2139/ssrn.3126593
JEL F21, F23, F53, H25, H26, H73, H87, K34

Associations

People
Petkova, Kunka (Details)
Stasio, Andrzej (Details)
Zagler, Martin (Details)
Organization
Research Institute for International Taxation FI (Details)
Institute for Macroeconomics IN (Details)
Research areas (ÖSTAT Classification 'Statistik Austria')
5311 Public finance (Details)
5341 Economic policy (Details)
5343 Economic theory (Details)
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