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The institutional design of international double taxation avoidance

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  • Rixen, Thomas

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. -- Dieser Artikel analysiert die institutionelle Form der internationalen Kooperation zur Vermeidung von Doppelbesteuerung. Es wird argumentiert, dass das Doppelbesteuerungsproblem als ein Koordinationsspiel mit Verteilungskonflikt verstanden werden kann. Die Verteilung der Steuereinnahmen hängt von der Asymmetrie der Investitionsflüsse zwischen den vertragsschließenden Staaten ab. Da diese Investitionspositionen notwendigerweise paarweise variieren, können die Verteilungsinteressen der Staaten am besten in bilateralen Verhandlungen aufeinander abgestimmt werden. Weil es außerdem bei bilateralen Doppelbesteuerungsabkommen keine Externalitäten gibt, sind solche Verträge auch durchsetzbar. Trotzdem gibt es Bedarf für eine multilaterale Organisation, die Informationen und gemeinsame Praktiken in Form eines Modellabkommens verbreitet. Das Modellabkommen dient als Fokalpunkt für die bilateralen Verhandlungen. Die strategische Struktur als Koordinationsspiel kann außerdem erklären, warum die Institutionen der Doppelbesteuerungsvermeidung nicht mit Durchsetzungskapazitäten ausgestattet sind. Das sogenannte Verständigungsverfahren zur Beilegung von Vertragsstreitigkeiten dient vielmehr als Instrument zur Bearbeitung des Problems unvollständiger Verträge.

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Bibliographic Info

Paper provided by Social Science Research Center Berlin (WZB) in its series Discussion Papers, Research Unit: Global Governance with number SP IV 2008-302.

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Date of creation: 2008
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Handle: RePEc:zbw:wzbtci:spiv2008302

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  1. Richard Chisik & Ronald B. Davies, 2010. "Asymmetric FDI and Tax-Treaty Bargaining: Theory and Evidence," Working Papers 020, Ryerson University, Department of Economics.
  2. Koremenos, Barbara & Lipson, Charles & Snidal, Duncan, 2001. "The Rational Design of International Institutions," International Organization, Cambridge University Press, vol. 55(04), pages 761-799, September.
  3. David G. Hartman, 1982. "Tax Policy and Foreign Direct Investment in the United States," NBER Working Papers 0967, National Bureau of Economic Research, Inc.
  4. Hartman, David G., 1985. "Tax policy and foreign direct investment," Journal of Public Economics, Elsevier, vol. 26(1), pages 107-121, February.
  5. Sinn, H.W., 1990. "Taxation And The Birth Of Foreign Subsidiaries," Papers 66, Princeton, Woodrow Wilson School - Discussion Paper.
  6. Rixen, Thomas, 2008. "The institutional design of international double taxation avoidance," Discussion Papers, Research Unit: Global Governance SP IV 2008-302, Social Science Research Center Berlin (WZB).
  7. Abbott, Kenneth W. & Snidal, Duncan, 2000. "Hard and Soft Law in International Governance," International Organization, Cambridge University Press, vol. 54(03), pages 421-456, June.
  8. Drezner, Daniel W., 2000. "Bargaining, Enforcement, and Multilateral Sanctions: When Is Cooperation Counterproductive?," International Organization, Cambridge University Press, vol. 54(01), pages 73-102, December.
  9. 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.
  10. McIntyre, Michael J., 1993. "Guidelines for Taxing International Capital Flows: The Legal Perspective," National Tax Journal, National Tax Association, vol. 46(3), pages 315-21, September.
  11. John Whalley, 2001. "Puzzles Over International Taxation of Cross Border Flows of Capital Income," NBER Working Papers 8662, National Bureau of Economic Research, Inc.
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Cited by:
  1. Rixen, Thomas, 2008. "The institutional Design of international double Taxation Avoidance," MPRA Paper 8322, University Library of Munich, Germany.

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