Withholding Taxes or Information Exchange: The Taxation of International Interest Flows
This paper considers withholding taxes and information exchange as alternative means to tax international interest income. For each regime, we consider the maximum level of taxation of foreign-source income that can be sustained as the equilibrium of a repeated game. The best regime is the one that brings the level of taxation in the repeated game closest to the cooperative level of interest taxation. Sustainable levels of taxation in either regime depend on the importance of bank profits and on the marginal cost of public funds, among other things. Simulations with the model illustrate the choice between withholding taxes and information exchange. An explicit possibility is the emergence of a mixed regime, with one country imposing a withholding tax and the other country providing information. The basic model is extended to allow for size differences between the two countries and to incorporate a third, outside country.
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- Julian Alworth, 1998. "Taxation and Integrated Financial Markets: The Challenges of Derivatives and Other Financial Innovations," International Tax and Public Finance, Springer, vol. 5(4), pages 507-534, October.
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CEPR Financial Markets Paper
0028, European Science Foundation Network in Financial Markets, c/o C.E.P.R, 77 Bastwick Street, London EC1V 3PZ..
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- Sijbren Cnossen, 1996. "Company Taxes in the European Union: Criteria and Options for Reform," Fiscal Studies, Institute for Fiscal Studies, vol. 17(4), pages 67-97, November.
- Philippe Bacchetta & María Espinosa, 2000. "Exchange-of-Information Clauses in International Tax Treaties," International Tax and Public Finance, Springer, vol. 7(3), pages 275-293, May.
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