Bargaining over the Avoidance of Double Taxation: Evidence from German Tax Treaties

Thomas Rixen () and Peter Schwarz

FinanzArchiv: Public Finance Analysis, 2009, vol. 65, issue 4, 442-471

Abstract: Previous empirical studies have mainly analyzed tax competition, neglecting the role of tax cooperation in international taxation. We focus on German double taxation agreements (DTAs) and show for up to 45 tax treaties that the bargaining outcomes depend on investment asymmetries between the countries. A transition from a purely symmetrical country pair to a situation where foreign direct investment (FDI) flows in only one direction would increase on average the negotiated withholding tax rate by roughly 5 percentage points. We also show that bargaining over DTAs is not only about withholding tax rates, but also about the definition of a permanent establishment (PE). Our results are robust with regard to the concept of investment asymmetries (either in shares or levels) and different operationalizations (FDI stocks or sales).

Keywords: double taxation agreements; foreign direct investment; international tax cooperation; withholding tax (search for similar items in EconPapers)
JEL-codes: F23 H25 (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (16)

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DOI: 10.1628/001522108X486589

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