TY - JOUR
T1 - Asymmetric Double Tax Treaties: Relief Method and Tax Sparing for Foreign Direct Investment in Developing Countries
AU - Zagler, Martin
AU - Shehaj, Pranvera
PY - 2024/5
Y1 - 2024/5
N2 - 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.
AB - 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.
U2 - 10.1177/10911421241247241
DO - 10.1177/10911421241247241
M3 - Journal article
SN - 1091-1421
VL - 153
SP - 94
EP - 135
JO - Public Finance Review
JF - Public Finance Review
IS - 1
ER -