What makes countries negotiate away their corporate tax base?

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte.Abstract: Qualitative case studies suggest that the outcomes of tax treaty negotiations are determined by power politics and negotiating capability. In contrast, quantitative studies have tended to depart from a model that implies absolute gains, full rationality, and perfect information on the part of both treaty signatories. This paper bridges the gap by replicating two existing quantitative studies, introducing new, more sophisticated data. New fiscal data are drawn from the ICTD Government Revenue Dataset, while treaty content is measured using the ActionAid Tax Treaties Dataset. It finds that developing countries that raise more corporate income tax are more likely to sign tax treaties with wealthier countries, and more likely to negotiate higher withholding tax rates in those treaties, but not more likely to obtain a better negotiated result overall. In contrast, developing countries that raise more revenue in total are more likely to negotiate better outcomes in other clauses of the treaty that are more obscure and technically complex. There is also a strong learning effect, with better outcomes across the board as a developing country gains experience of signing tax treaties. Finally, greater asymmetries in investment stocks and material capabilities lead to worse outcomes for developing countries.

The social welfare impact of double tax treaties in Sub Saharan Africa

“…The fiscal policy of a country plays a major role in poverty reduction. In recent years, there has been a major upheaval on the impact of tax treaties on developing countries (IMF, 2014;ActionAid, 2016 andHearson, 2017). The mechanism by which African countries lose corporate tax revenue via a network of double tax treaties (DTTs) has been highlighted in recent research.…”

The Cost and Benefits of Tax Treaties with Investment Hubs: Findings from Sub-Saharan Africa

“…Our assessment of the non-negligible cost of tax treaties concluded with investment hubs also raises more general questions on the decision-making processes in countries that are giving up some of their taxing rights. Looking at results of tax treaty negotiations, Hearson (2017) builds on earlier work by Rixen and Schwartz (2009) and Barthel and Neumeyer (2012) and finds that outcomes differ information and bilateral transaction information for Sub-Saharan African countries, our analysis is based on macroeconomic aggregate information, which is available for most countries, but tends to be less accurate when aiming at identifying tax driven effects. noticeably across simpler and more complex provisions, and, relatedly, demonstrates a learning effect: Developing countries seem to maintain more taxing rights in more recent treaties in their network.…”