IDEAS home Printed from https://ideas.repec.org/a/kap/itaxpf/v20y2013i6p910-937.html
   My bibliography  Save this article

Tax treaty shopping: structural determinants of Foreign Direct Investment routed through the Netherlands

Author

Listed:
  • Francis Weyzig

Abstract

Many multinationals divert Foreign Direct Investment (FDI) through conduit countries that have a favorable tax treaty network, to avoid host country withholding taxes. This is referred to as tax treaty shopping. The Netherlands is the world’s largest conduit country; in 2009, multinationals held approximately €1,600 billion of FDI via the Netherlands. This paper uses microdata from Dutch Special Purpose Entities to analyze geographical patterns and structural determinants of FDI diversion. Regression analysis confirms that tax treaties are a key determinant of FDI routed through the Netherlands. The effect of tax treaties on FDI diversion partly arises from the reduction of dividend withholding tax rates, which provides strong evidence for tax treaty shopping. Copyright Springer Science+Business Media, LLC 2013

Suggested Citation

  • Francis Weyzig, 2013. "Tax treaty shopping: structural determinants of Foreign Direct Investment routed through the Netherlands," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 20(6), pages 910-937, December.
    • Handle: RePEc:kap:itaxpf:v:20:y:2013:i:6:p:910-937
    DOI: 10.1007/s10797-012-9250-z
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1007/s10797-012-9250-z
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s10797-012-9250-z?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Collins, Julie H. & Shackelford, Douglas A., 1997. "Global organizations and taxes: An analysis of the dividend, interest, royalty, and management fee payments between U.S. multinationals' foreign affiliates," Journal of Accounting and Economics, Elsevier, vol. 24(2), pages 151-173, December.
    2. Peter Egger & Mario Larch & Michael Pfaffermayr & Hannes Winner, 2006. "The impact of endogenous tax treaties on foreign direct investment: theory and evidence," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 39(3), pages 901-931, August.
    3. Marshall Reinsdorf & Matthew J. Slaughter, 2009. "International Trade in Services and Intangibles in the Era of Globalization," NBER Books, National Bureau of Economic Research, Inc, number rein09-1.
    4. John Mutti & Harry Grubert, 2009. "The Effect of Taxes on Royalties and the Migration of Intangible Assets Abroad," NBER Chapters, in: International Trade in Services and Intangibles in the Era of Globalization, pages 111-137, National Bureau of Economic Research, Inc.
    5. Fabian Barthel & Matthias Busse & Eric Neumayer, 2010. "The Impact Of Double Taxation Treaties On Foreign Direct Investment: Evidence From Large Dyadic Panel Data," Contemporary Economic Policy, Western Economic Association International, vol. 28(3), pages 366-377, July.
    6. Harry Grubert & Joel Slemrod, 1998. "The Effect Of Taxes On Investment And Income Shifting To Puerto Rico," The Review of Economics and Statistics, MIT Press, vol. 80(3), pages 365-373, August.
    7. Alfons J. Weichenrieder & Jack Mintz, 2008. "What determines the use of holding companies and ownership chains?," Working Papers 0803, Oxford University Centre for Business Taxation.
    8. Francis Weyzig & Michiel van Dijk, 2009. "Incoherence between Tax and Development Policies: the case of the Netherlands," Third World Quarterly, Taylor & Francis Journals, vol. 30(7), pages 1259-1277.
    9. Eric Neumayer, 2007. "Do double taxation treaties increase foreign direct investment to developing countries?," Journal of Development Studies, Taylor & Francis Journals, vol. 43(8), pages 1501-1519.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. 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.
    2. Beer,Sebastian & Loeprick,Jan, 2018. "The Cost and Benefits of Tax Treaties with Investment Hubs : Findings from Sub-Saharan Africa," Policy Research Working Paper Series 8623, The World Bank.
    3. Arjan Lejour, 2014. "The Foreign Investment Effects of Tax Treaties," Working Papers 1403, Oxford University Centre for Business Taxation.
    4. Kazunobu Hayakawa & Hyun-Hoon Lee & Donghyun Park, 2014. "Are Investment Promotion Agencies Effective in Promoting Outward Foreign Direct Investment? The Cases of Japan and Korea," Asian Economic Journal, East Asian Economic Association, vol. 28(2), pages 111-138, June.
    5. Maarten van 't Riet & Arjan Lejour, 2014. "Ranking the Stars: Network Analysis of Bilateral Tax Treaties," CPB Discussion Paper 290, CPB Netherlands Bureau for Economic Policy Analysis.
    6. Arjan Lejour, 2014. "The Foreign Investment Effects of Tax Treaties," Working Papers 1403, Oxford University Centre for Business Taxation.
    7. Peter Nunnenkamp, 2010. "How Global is Foreign Direct Investment and What Can Policymakers Do About It? Stylized Facts, Knowledge Gaps, and Selected Policy Instruments," Chapters, in: Robert M. Solow & Jean-Philippe Touffut (ed.), The Shape of the Division of Labour, chapter 2, Edward Elgar Publishing.
    8. 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).
    9. Maarten van 't Riet & Arjan Lejour, 2014. "Ranking the Stars: Network Analysis of Bilateral Tax Treaties," CPB Discussion Paper 290.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    10. Lee, Siwook & Kim, Daeyong, 2022. "The impact of tax treaties on foreign direct investment: The evidence reconsidered," KDI Journal of Economic Policy, Korea Development Institute (KDI), vol. 44(3), pages 27-48.
    11. 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).
    12. 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.
    13. Heckemeyer, Jost H. & Richter, Katharina & Spengel, Christoph, 2014. "Tax planning of R&D intensive multinationals," ZEW Discussion Papers 14-114, ZEW - Leibniz Centre for European Economic Research.
    14. Lobanov, Mikhail (Лобанов, Михаил) & Zvezdanovic-Lobanova, Elena (Звездович-Лобанова, Елена), 2015. "Double Taxation Treaties as a Factor of Cross-border Investment Activity [Соглашения Об Избежании Двойного Налогообложения Как Фактор Трансграничной Инвестиционной Активности]," Ekonomicheskaya Politika / Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 1, pages 92-111, February.
    15. Mumtaz Hussain Shah & Saba Qayyum, 2015. "Impact of Double Taxation Treaties on Inward FDI in Latin American and Caribbean Developing Countries," Business & Economic Review, Institute of Management Sciences, Peshawar, Pakistan, vol. 7(1), pages 1-18, April.
    16. Harendt, Christoph & Dreßler, Daniel & Overesch, Michael, 2016. "The Impact of Tax Treaties and Repatriation Taxes on FDI Revisited," VfS Annual Conference 2016 (Augsburg): Demographic Change 145588, Verein für Socialpolitik / German Economic Association.
    17. Charles Braymen & Yang-Ming Chang & Zijun Luo, 2016. "Tax Policies, Regional Trade Agreements and Foreign Direct Investment: A Welfare Analysis," Pacific Economic Review, Wiley Blackwell, vol. 21(2), pages 123-150, May.
    18. Michael Overesch & Georg Wamser, 2009. "Who Cares About Corporate Taxation? Asymmetric Tax Effects on Outbound FDI," The World Economy, Wiley Blackwell, vol. 32(12), pages 1657-1684, December.
    19. Sava? Çevik & Mehmet Okan Ta?ar, 2015. "The Impact of Double Tax Treaties on Foreign Direct Investments: Evidence from Turkey?s Outward FDIs," Proceedings of International Academic Conferences 2504045, International Institute of Social and Economic Sciences.
    20. Wolfram F. Richter & Markus Breuer, 2015. "Pricing the Transfer of Intellectual Property as a Problem of Second-Best Tax Policy," CESifo Working Paper Series 5340, CESifo.

    More about this item

    Keywords

    Treaty shopping; Tax treaties; Foreign direct investment; Withholding tax; Special purpose entities; G32; H25; H32;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:itaxpf:v:20:y:2013:i:6:p:910-937. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.