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Optimal tax routing: Network analysis of FDI diversion
van't Riet,Maarten Lejour,Arjan
van't Riet,Maarten
Lejour,Arjan
Abstract
The international corporate tax system is considered a network. Just like for transportation, “shortest” paths are computed, which minimize tax payments for multinational enterprises when they repatriate profits. We include corporate income tax rates, withholding taxes on dividends, double tax treaties, and 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% points. An indicator for centrality in the tax network identifies the UK, Luxembourg, and the Netherlands as the most important conduit countries. Low-tax havens do not have a crucial role in reducing dividend repatriation taxes. By contrast, tax haven financial centres do. In the regressions we find that the centrality measures are robustly significant explanatory variables for bilateral FDI stocks. This also holds for our treaty shopping indicator.
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2018-10
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s10797-018-9491-6.pdf
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Corporate taxation, Tax treaties, Treaty shopping, Tax havens, Shortest path, F23 - Multinational Firms ; International Business, H25 - Business Taxes and Subsidies, H26 - Tax Evasion and Avoidance, H87 - International Fiscal Issues ; International Public Goods, SDG 17 - Partnerships for the Goals
Citation
van't Riet, M & Lejour, A 2018, 'Optimal tax routing : Network analysis of FDI diversion', International Tax and Public Finance, vol. 25, no. 5, pp. 1321-1371. https://doi.org/10.1007/s10797-018-9491-6