Petkova Kunka, Stasio Andrzej, Zagler Martin
WU Vienna University of Economics and Business, Welthandelsplatz 1, Building D3, 1020 Vienna, Austria.
UPO University of Eastern Piedmont, Via Perrone 18, 28100 Novara, Italy.
Int Tax Public Financ. 2020;27(3):575-605. doi: 10.1007/s10797-019-09570-9. Epub 2019 Sep 21.
This paper investigates the effects of double tax treaties (DTTs) on foreign direct investment (FDI) after controlling for their relevance in the presence of treaty shopping. DTTs cannot be considered a bilateral issue, but must be viewed as a network. We define tax distance as the cost of channelling corporate income from one country to another and, by considering treaty shopping through intermediate jurisdictions, we calculate the shortest (i.e. the cheapest) distance between any two countries. We show that relevant tax treaties-which reduce the direct tax distance both over domestic law and the entire existing treaty network-will increase FDI by about 18%.
