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The Effect of Tax Treaties on Market Based Finance: Evidence using Firm-Level Data

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  • Ronald B. Davies
  • Neill Killeen

Abstract

Tax arbitrage is often cited as a potential motive for the substantial growth and complexity of market based finance. Tax treaties are an important feature of the international tax system and can be used to reduce the tax burden on cross-border capital flows. Using an EU firm-level dataset and a number of alternative tax treaty measures, this paper investigates the importance of tax treaties on the investment decisions of a large sample of non-bank financial institutions. The novel dataset includes conduits such as special purpose entities which are often used to channel cross-border investments. Our results show that tax treaties influence the extensive margin of non-bank financial FDI with conduit related investments particularly sensitive to international taxation.

Suggested Citation

  • Ronald B. Davies & Neill Killeen, 2018. "The Effect of Tax Treaties on Market Based Finance: Evidence using Firm-Level Data," Working Papers 201818, School of Economics, University College Dublin.
    • Handle: RePEc:ucn:wpaper:201818
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    File URL: http://hdl.handle.net/10197/9548
    File Function: First version, 2018
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    Cited by:

    1. Galstyan, Vahagn & Maqui, Eduardo & McQuade, Peter, 2021. "International debt and special purpose entities: Evidence from Ireland," Journal of International Money and Finance, Elsevier, vol. 115(C).

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    More about this item

    Keywords

    Tax treaties; Market-based finance; Shadow banking system; Conditional logit model; Mixed logit model; Nested logit model;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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