 Asymmetric Double Tax Treaties: Relief Method and Tax Sparing for Foreign Direct Investment in Developing CountriesPranvera Shehaj and Martin Zagler Public Finance Review, 2025, vol. 53, issue 1, 94-135 Abstract: This paper focuses on asymmetric tax treaties and investigates from an empirical perspective the impact of OECD member states’ double tax relief method and of treaty tax-sparing provisions on investments in developing countries, while considering network effects. Our results suggest that having a treaty between the OECD member state and the developing country, which improves the investor's conditions in terms of tax burden, by changing the unilateral tax relief method, increases FDI to the developing country. The positive effect prevails when investigated within investments made through the direct route from residence to source. Results suggest that OECD member states offer tax-sparing provisions mostly to less-developed economies, which already receive very low FDI. Finally, we extend the investigation to an analysis of the impact of residence countries’ tax relief methods on source countries’ domestic tax policy. Our results suggest that developing countries set higher CIT rates when the OECD member state relieves double taxation through the exemption method, as compared to when it offers a foreign tax credit. Keywords: asymmetric tax treaties; FDI; double tax relief method; tax sparing; treaty network; CIT; F53; F21; F23; H25; H73; K34 (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:sae:pubfin:v:53:y:2025:i:1:p:94-135 DOI: 10.1177/10911421241247241 Access Statistics for this article More articles in Public Finance Review |
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