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Optimal Tax Routing : Network Analysis of FDI Diversion

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  • van 't Riet, Maarten
  • Lejour, Arjen

    (Tilburg University, Center For Economic Research)

Abstract

The international corporate tax system is considered as a network and, just like for transportation, ‘shortest’ paths are computed, minimizing tax payments for multinational enterprises when repatriating profits. We include corporate income tax rates, withholding taxes on dividends, double tax treaties and the double taxation relief methods. We find that treaty shopping leads to an average potential reduction of the tax burden on repatriated dividends of about 6 percentage points. Moreover, an indicator for centrality in the tax network identifies the United Kingdom, Luxembourg and the Netherlands, amongst others, as the most important conduit countries. Tax havens do not have a crucial role in treaty shopping. In the regression analysis we find that the centrality indicators are robustly significant explanatory variables for bilateral FDI stocks. This also holds for our treaty shopping indicator.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • van 't Riet, Maarten & Lejour, Arjen, 2017. "Optimal Tax Routing : Network Analysis of FDI Diversion," Discussion Paper 2017-022, Tilburg University, Center for Economic Research.
    • Handle: RePEc:tiu:tiucen:27bcdae9-6609-40d5-95df-d634fd4f0fd5
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    More about this item

    Keywords

    Corporate taxation; tax treaties; treaty shopping; tax havens; shortest path;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods

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