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Separating the Opposing Effects of Bilateral Tax Treaties

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  • Bruce A. Blonigen
  • Lindsay Oldenski
  • Nicholas Sly

Abstract

Bilateral tax treaties (BTT) are intended to promote foreign direct investment and foreign affiliate activity through double taxation relief. However, BTTs also typically contain provisions that facilitate sharing of tax information between countries intended to curtail tax avoidance by multinational firms. These provisions should disproportionately affect firms that intensively use inputs for which an arms-length price is easily observed, since strategic transfer practices that manipulate tax liabilities are no longer effective with information sharing between countries. Using BEA firm-level data we are able to separately estimate the impacts of double-taxation relief and sharing of tax information on investment behavior of US multinational firms. We find a significant positive effect of new tax treaties on foreign affiliate activity between member nations that is offset (and even reversed) the more a firm relies on inputs traded on an organized exchange (i.e., inputs for which the arms-length price is easily observed). We find these opposing BTT effects for both the intensive margin (sales of existing affiliates) and the extensive margin (entry of new affiliates).

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17480.

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Date of creation: Oct 2011
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Publication status: Forthcoming: Separating the Opposing Effects of Bilateral Tax Treaties , Bruce A. Blonigen, Lindsay Oldenski, Nicholas Sly. in Trans-Atlantic Public Economics Seminar , Devereux and Gordon. 2014
Handle: RePEc:nbr:nberwo:17480

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References

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Cited by:
  1. Nicholas Sly & Caroline Weber, 2013. "International Fiscal Policy Coordination and GDP Comovement," CESifo Working Paper Series 4358, CESifo Group Munich.
  2. Arjan Lejour, 2014. "The Foreign Investment Effects of Tax Treaties," CPB Discussion Paper 265, CPB Netherlands Bureau for Economic Policy Analysis.
  3. Rudiger Ahrend & Antoine Goujard, 2012. "International Capital Mobility and Financial Fragility - Part 3. How Do Structural Policies Affect Financial Crisis Risk?: Evidence from Past Crises Across OECD and Emerging Economies," OECD Economics Department Working Papers 966, OECD Publishing.
  4. repec:hal:wpaper:halshs-00665054 is not listed on IDEAS
  5. Niels Johannesen & Gabriel Zucman, 2012. "The End of Bank Secrecy? An Evaluation of the G20 Tax Haven Crackdown," PSE Working Papers halshs-00665054, HAL.

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