The institutional Design of international double Taxation Avoidance

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The institutional Design of international double Taxation Avoidance

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Rixen, Thomas

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Thomas Rixen

Abstract

This article analyzes the institutional design of international double tax avoidance. The basic argument is that double tax avoidance exhibits the strategic structure of a coordination game with a distributive conflict. The distribution of tax revenues depends on the asymmetry of investment flows between treaty partners. Since investment flows are defined dyadically, bilateral bargaining can best accommodate countries’ concern for the distribution of tax revenues and other economic benefits connected to the tax base. Moreover, because there are no serious externality problems with bilateral agreement, this solution is also viable. At the same time, there is a need for a multilateral organization to disseminate information and shared practices in the form of a model convention that provides a focal point for bilateral negotiations. The strategic structure of a coordination game can also explain why the institutions of double tax avoidance do not have to be equipped with third-party enforcement capabilities. Instead, the Mutual Agreement Procedure (MAP) is interpreted as a device to deal with the fact that double tax agreements (DTAs) are incomplete contracts.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 8322.

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Date of creation: 2008
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Handle: RePEc:pra:mprapa:8322

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Find related papers by JEL classification:
F20 - International Economics - - International Factor Movements and International Business - - - General
H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
F53 - International Economics - - International Relations and International Political Economy - - - International Agreements and Observance; International Organizations

This paper has been announced in the following NEP Reports:

NEP-ALL-2008-04-29 (All new papers)
NEP-PBE-2008-04-29 (Public Economics)

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John Whalley, 2001. "Puzzles Over International Taxation of Cross Border Flows of Capital Income," NBER Working Papers 8662, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Richard Chisik & Ronald B. Davies, 2001. "Asymmetric FDI and Tax-Treaty Bargaining: Theory and Evidence"," University of Oregon Economics Department Working Papers 2001-2, University of Oregon Economics Department, revised 01 Jun 2002. [Downloadable!]
Other versions:
- Ron Davies & Richard Chisik, 2004. "Asymmetric FDI and Tax-Treaty Bargaining: Theory and Evidence," Econometric Society 2004 Latin American Meetings 64, Econometric Society.
- Chisik, Richard & Ronald B. Davies, 2002. "Asymmetric FDI and Tax-Treaty Bargaining: Theory and Evidence," Royal Economic Society Annual Conference 2002 48, Royal Economic Society. [Downloadable!]
- Richard A. Chisik & Ronald B. Davies, 2003. "Asymmetric FDI and Tax-Treaty Bargaining: Theory and Evidence," Working Papers 0309, Florida International University, Department of Economics. [Downloadable!]
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Ronald B. Davies, 2004. "Tax Treaties and Foreign Direct Investment: Potential versus Performance," International Tax and Public Finance, Springer, vol. 11(6), pages 775-802, November. [Downloadable!]
Other versions:
- Ronald Davies, 2004. "Tax Treaties and Foreign Direct Investment: Potential versus Performance," Asia-Pacific Financial Markets, Springer, vol. 11(6), pages 775-802, November. [Downloadable!] (restricted)
Abbott, Kenneth W & Snidal, Duncan, 2000. "Hard and Soft Law in International Governance," International Organization, MIT Press, vol. 54(3), pages 421-56, Summer.
Hartman, David G., 1985. "Tax policy and foreign direct investment," Journal of Public Economics, Elsevier, vol. 26(1), pages 107-121, February. [Downloadable!] (restricted)
Barbara Koremenos & Charles Lipson & Duncan Snidal, 2001. "The Rational Design of International Institutions," International Organization, MIT Press, vol. 55(4), pages 761-799, October. [Downloadable!] (restricted)

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