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We combine macro and micro data to quantify the revenue effects of Double Tax Treaties (DTT). First, drawing on administrative information, we estimate the tax sensitivity of income flows (dividend, interest and royalty payments) at an aggregate level. We find important direct revenue costs linked to treaty restrictions on taxing rights, in particular with respect to flows into a small number of major investment hubs. Importantly, however, high elasticities of income flows also suggest that increases of withholding rates at the individual treaty partner level would not necessarily result in more revenue collection. Second, we use firm-level information to estimate the sensitivity of reported profitability to changes in the relevant treaty network. Our analysis of reported MNE affiliate earning in Ukraine suggests that the ownership structure and operations with affiliates in certain jurisdictions explains reported profitability and should thus receive increased attention in risk assessment and transfer pricing audit activities.JEL codes: F21, F23, H25, H26, H32

The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.

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