On the relevance of double tax treaties

Petkova, Kunka; Stasio, Andrzej; Zagler, Martin

doi:10.1007/s10797-019-09570-9

Cited by 34 publications

(35 citation statements)

References 41 publications

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“…As a complex network, the international tax treaty system should be considered using a complex network approach. However, only a few pioneering studies have examined the tax system and avoidance behavior using network analysis [17][18][19]. Hong constructed a tax rate matrix of dividends to represent a network of tax treaties between 70 countries, creating a computational algorithm to study tax-minimizing investment routes in the network [17].…”

Section: Previous Literature On Tax Avoidancementioning

confidence: 99%

Navigating optimal treaty-shopping routes using a multiplex network model

Park

Lee²,

Yang³

2021

PLoS ONE

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The international tax treaty system is a highly integrated and complex network. In this system, many multinational enterprises (MNEs) explore ways of reducing taxes by choosing optimal detour routes. Treaty abuse by these MNEs causes significant loss of tax revenues for many countries, but there is no systematic way of regulating their actions. However, it may be helpful to find a way of detecting the optimal routes by which MNEs avoid taxes and observe the effects of this behavior. In this paper, we investigate the international tax treaty network system of foreign investment channels based on real data and introduce a novel measure of tax-routing centrality and other centralities via network analysis. Our analysis of tax routing in a multiplex network reveals not only various tax-minimizing routes and their rates, but also new paths which cannot be found by navigating a single network layer. In addition, we identify strongly connected components of the multiplex tax treaty system with minimal tax shopping routes; more than 80 countries are included in this system. This means that there are far more pathways to be observed than can be detected on any given individual single layer. We provide a unified framework for analyzing the international tax treaty system and observing the effects of tax avoidance by MNEs.

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Section: Previous Literature On Tax Avoidancementioning

confidence: 99%

Navigating optimal treaty-shopping routes using a multiplex network model

Park

Lee²,

Yang³

2021

PLoS ONE

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“…6 De Beer et al (2020) also discuss treaty shopping and refer to some estimates on revenue losses, but these are for specific countries. 7 Hong (2018), Petkova et al (2019), and van 't Riet and Lejour (2018). 8 Recently, Damgaard et al (2019) have labelled double counted investments as phantom investments.…”

Section: Introductionmentioning

confidence: 99%

“…The cheapest tax routes have been determined for 108 countries using the Floyd-Warshall algorithm. This is an original approach for analyzing this form of tax avoidance and recentlyHong (2018) andPetkova et al (2019) apply this method with other algorithms.27 This is an aggregate of about 80 countries covering more than 90% of the world economy. The global total is somewhat higher.…”

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confidence: 99%

The Role of Conduit Countries and Tax Havens in Corporate Tax Avoidance

Lejour

2021

SSRN Journal

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Traditional tax havens and conduit countries have different economic and tax characteristics. This paper shows that conduit countries are larger economies, have higher statutory and effective tax rates, have more bilateral treaties and are more transparent. Because of these characteristics, other countries apply lower withholding taxes on income flows to conduit countries compared to tax havens and do not apply CFC-rules on profit income generated in conduit countries. I assess quantitatively the role of tax havens and conduit countries in international corporate tax avoidance taking account of the literature on corporate tax revenue losses, treaty shopping and phantom investment. I allocate the global tax revenues losses due to profit shifting and treaty shopping to individual countries, using GDP, tax rates, FDI positions and FDI income. Traditional tax havens are only responsible for a small part of corporate tax avoidance. Conduit countries are involved in a much larger share, in particular on treaty shopping. A large share of the profit shifting losses is also due to different tax arrangements between other developed countries.

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“…They find that treaty shopping leads to an average potential reduction of the tax burden on repatriated dividends of approximately 6 percentage points, with the United Kingdom, Luxembourg and the Netherlands as the most important conduit countries. In a paper that extends this approach and in another one considering tax treaties as a network, Hong (2018) and Petkova et al (2020) differentiate between relevant, neutral and irrelevant tax treaties according to whether or not they provide investors with a financial advantage. They find that only relevant and neutral tax treaties increase bilateral FDI, whereas irrelevant ones do not.…”

mentioning

confidence: 99%

“…Similarly, the IMF data do not include decomposition into income attributed to special purpose entities and pass-throughs (Benchmark Definition of Foreign Direct Investment, 2008), which could provide an indication of treaty shopping. In contrast, Weyzig (2013) exploits detailed Dutch data for special purpose entities and, more recently, Petkova et al (2020) explicitly account for treaty shopping and calculate the shortest tax distance between any two countries, allowing corporate income to be channelled through intermediate jurisdictions. Also, Mintz and Weichenrieder (2010) and Lejour (2014) include empirical analysis related to treaty shopping.…”

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confidence: 99%

Tax treaties worldwide: Estimating elasticities and revenue foregone

Jánský

Láznička

Palanský

2020

Rev International Economics

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An ongoing research discussion focuses on the extent to which tax treaties, or double taxation agreements, are capable of accomplishing one of their stated objectives, that is, providing support for cross-border investment. While this discussion currently lacks a conclusive outcome, it has been established that tax treaties lead to lower withholding tax rates on dividends and interest payments. This practice lowers government revenues from such taxes worldwide. Although there are now over 3,000 bilateral tax treaties, little is known about the scale of potential tax revenue foregone associated with the lower taxation they facilitate. Furthermore, what little we know is mostly based on static estimates, which unrealistically assume that tax treaties themselves do not influence dividends and interest payments. In this paper, we overturn this assumption by estimating the extent to which dividend and interest flows react to changes in withholding rates, and reflect these elasticities in new estimates of potential tax revenue foregone.

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On the relevance of double tax treaties

Cited by 34 publications

References 41 publications

Navigating optimal treaty-shopping routes using a multiplex network model

Navigating optimal treaty-shopping routes using a multiplex network model

The Role of Conduit Countries and Tax Havens in Corporate Tax Avoidance

Tax treaties worldwide: Estimating elasticities and revenue foregone

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