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Estimating the revenue costs of tax treaties in developing countries

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  • Petr Janský
  • Marek Šedivý

Abstract

(12764) Petr Janský Marek Šedivý Tax treaties between countries influence how much tax revenues governments receive from multinational enterprises. These treaties often reduce the withholding tax rates on outgoing dividend and interest payments. We provide illustrative estimates of costs for these two taxes for 14 developing countries in sub‐Saharan Africa and Asia in a first multi‐country comparison of this kind. These might be overestimates because we assume that foreign direct investments are not influenced by the tax treaties. We estimate that the highest potential tax revenue losses are within hundreds of millions US$ and around 0.1% of GDP, with Philippines incurring the highest losses both in US$ and relative to GDP. We also find that around 95% of the losses is due to dividends and that only four investor countries—Japan, Netherlands, Switzerland and Singapore—are together responsible for more than half of the losses. We discuss the limitations of these estimates and how future research could improve their quality as well as coverage.

Suggested Citation

  • Petr Janský & Marek Šedivý, 2019. "Estimating the revenue costs of tax treaties in developing countries," The World Economy, Wiley Blackwell, vol. 42(6), pages 1828-1849, June.
    • Handle: RePEc:bla:worlde:v:42:y:2019:i:6:p:1828-1849
    DOI: 10.1111/twec.12764
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    Cited by:

    1. Petr Janský & Jan Láznička & Miroslav Palanský, 2021. "Tax treaties worldwide: Estimating elasticities and revenue foregone," Review of International Economics, Wiley Blackwell, vol. 29(2), pages 359-401, May.
    2. West, Ashley & Wilkinson, Brett, 2024. "What do we know about tax treaties and how can accounting research contribute?," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 54(C).
    3. Laudage, Sabine, 2020. "Corporate tax revenue and foreign direct investment: Potential trade-offs and how to address them," IDOS Discussion Papers 17/2020, German Institute of Development and Sustainability (IDOS).
    4. Sebastian Beer & Jan Loeprick, 2021. "Too high a price? Tax treaties with investment hubs in Sub-Saharan Africa," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 28(1), pages 113-153, February.
    5. Kudła, Janusz & Kopczewska, Katarzyna & Stachowiak-Kudła, Monika, 2023. "Trade, investment and size inequalities between countries and the asymmetry in double taxation agreements," Economic Modelling, Elsevier, vol. 122(C).

    More about this item

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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