Developing Countries, Tax Treaty Shopping and the Global Minimum Tax

Maarten van 't Riet, Arjan Lejour and Arjan M. Lejour
Authors registered in the RePEc Author Service: Arjan M. Lejour

No 11641, CESifo Working Paper Series from CESifo

Abstract: Analysis of the international network of double tax treaties reveals a large potential for tax avoidance. Developing countries are, on average, not more likely to suffer from tax revenue losses than other countries. Yet, this average masks the fact that several countries, such as Bangladesh, Egypt, Indonesia, Kenya, Uganda and Zambia, are vulnerable to substantial potential losses of withholding tax revenue by treaty shopping. The analysis combines tax parameters of more than a hundred countries with an algorithm from network theory, which simulates the tax minimizing behaviour of multinational enterprises. We introduce the notion of potentially aggressive tax treaties. These are the key treaties in treaty shopping routes, that may lead to substantial tax revenue losses in developing countries. Moreover, the treaty partners are often in a prime position to top-up tax undertaxed profits of developing countries that offer tax incentives to attract investment, thus nullifying the incentive effects.

Keywords: tax treaties; treaty shopping; developing countries; network analysis; withholding taxes; aggressive tax treaties; global minimum tax (search for similar items in EconPapers)
JEL-codes: F23 H25 H26 O10 (search for similar items in EconPapers)
Date: 2025
New Economics Papers: this item is included in nep-acc, nep-net, nep-pbe, nep-pub and nep-sea
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Working Paper: Developing Countries, Tax Treaty Shopping and the Global Minimum Tax (2025)
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