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On the relevance of double tax treaties

Kunka Petkova (), Andrzej Stasio () and Martin Zagler ()

International Tax and Public Finance, 2020, vol. 27, issue 3, No 5, 575-605

Abstract: 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. We define tax distance as the cost of channelling corporate income from one country to another and, by considering treaty shopping through intermediate jurisdictions, we calculate the shortest (i.e. the cheapest) distance between any two countries. We show that relevant tax treaties—which reduce the direct tax distance both over domestic law and the entire existing treaty network—will increase FDI by about 18%.

Keywords: Double tax treaties; FDI; Treaty shopping; Tax treaty network (search for similar items in EconPapers)
JEL-codes: F21 F23 F53 H25 H26 H73 H87 K34 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1007/s10797-019-09570-9

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