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Bargaining over the Avoidance of Double Taxation: Evidence from German Tax Treaties

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  • Thomas Rixen
  • Peter Schwarz

Abstract

Previous empirical studies have mainly analyzed tax competition, neglecting the role of tax cooperation in international taxation. We focus on German double taxation agreements (DTAs) and show for up to 45 tax treaties that the bargaining outcomes depend on investment asymmetries between the countries. A transition from a purely symmetrical country pair to a situation where foreign direct investment (FDI) flows in only one direction would increase on average the negotiated withholding tax rate by roughly 5 percentage points. We also show that bargaining over DTAs is not only about withholding tax rates, but also about the definition of a permanent establishment (PE). Our results are robust with regard to the concept of investment asymmetries (either in shares or levels) and different operationalizations (FDI stocks or sales).

Suggested Citation

  • Thomas Rixen & Peter Schwarz, 2009. "Bargaining over the Avoidance of Double Taxation: Evidence from German Tax Treaties," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 65(4), pages 442-471, December.
  • Handle: RePEc:mhr:finarc:urn:sici:0015-2218(200912)65:4_442:botaod_2.0.tx_2-i
    DOI: 10.1628/001522108X486589
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    Citations

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    Cited by:

    1. Hearson, Martin, 2018. "When do developing countries negotiate away their corporate tax base?," LSE Research Online Documents on Economics 87762, London School of Economics and Political Science, LSE Library.
    2. Julia Braun & Martin Zagler, 2017. "The true art of the tax deal: Evidence on aid flows and bilateral double tax agreements," Department of Economics Working Papers wuwp242, Vienna University of Economics and Business, Department of Economics.
    3. Martin Hearson, 2017. "Political role models, child marriage, and women’s autonomy over marriage in India," WIDER Working Paper Series 122, World Institute for Development Economic Research (UNU-WIDER).

    More about this item

    Keywords

    double taxation agreements; foreign direct investment; international tax cooperation; withholding tax;

    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

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