Mutual agreement procedure and foreign direct investments: evidence from firm-level data

Xixi Zhang () and Matthias Petutschnig ()
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Xixi Zhang: IESEG School of Management
Matthias Petutschnig: Vienna University of Economics and Business

International Tax and Public Finance, 2025, vol. 32, issue 6, No 6, 1777-1838

Abstract: Abstract This paper investigates the association between the effectiveness of mutual agreement procedures provided for in bilateral tax treaties (MAP) and foreign direct investments by analyzing MAP statistics and distinct MAP components. Using firm-level ownership data, we find that MNEs invest more frequently in countries with good MAP policy structures and qualities (e.g., MAP components and fast dispute resolution). Vertically integrated MNEs and small parent MNEs most favor countries with several effective MAP components. Overall, we provide novel evidence on MNEs’ investment responses to effective MAP, evidence that is crucial for policymakers who aim to reduce tax disputes and double taxation.

Keywords: Location probability; Tax certainty; Mutual agreement procedure (search for similar items in EconPapers)
JEL-codes: F23 H25 O57 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s10797-025-09899-4

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