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Measuring tax treaty negotiation outcomes: the Actionaid tax treaties dataset

Author

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  • Hearson, Martin
Abstract
This paper introduces a new dataset that codes the content of 519 tax treaties signed by low- and lower-middle-income countries in Africa and Asia. Often called Double Taxation Agreements, bilateral tax treaties divide up the right to tax cross-border economic activity between their two signatories. When one of the signatories is a developing country that is predominantly a recipient of foreign investment, the effect of the tax treaty is to impose constraints on its ability to tax inward investors, ostensibly to encourage more investment. The merits of tax treaties for developing countries have been challenged in critical legal literature for decades, and studies of whether or not they attract new investment into developing countries give contradictory and inconclusive results. These studies have rarely disaggregated the elements of tax treaties to determine which may be most pertinent to any investment-promoting effect. Meanwhile, as developing countries continue to negotiate, renegotiate, review and terminate tax treaties, comparative data on negotiating histories and outcomes is not easily obtained. The new dataset fills both these gaps. Using it, this paper demonstrates how tax treaties are changing over time. The restrictions they impose on the rate of withholding tax developing countries can levy on cross-border payments have intensified since 1970. In contrast, the permanent establishment threshold, which specifies when a foreign company’s profits become taxable in a developing country, has been falling, giving developing countries more opportunity to tax foreign investors. The picture with respect to capital gains tax and other provisions is mixed. As a group, OECD countries appear to be moving towards treaties with developing countries that impose more restrictions on the latter’s taxing rights, while non-OECD countries appear to be allowing developing countries to retain more taxing rights than in the past. These overall trends, however, mask some surprising differences between the positions of individual industrialised and emerging economies. These findings pose more questions than they answer, and it is hoped that this paper and the dataset it accompanies will stimulate new research on tax treaties.

Suggested Citation

  • Hearson, Martin, 2016. "Measuring tax treaty negotiation outcomes: the Actionaid tax treaties dataset," LSE Research Online Documents on Economics 67869, London School of Economics and Political Science, LSE Library.
  • Handle: RePEc:ehl:lserod:67869
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    File URL: http://eprints.lse.ac.uk/67869/
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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. Martin Hearson, 2017. "What makes countries negotiate away their corporate tax base?," WIDER Working Paper Series wp-2017-122, World Institute for Development Economic Research (UNU-WIDER).
    3. 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.
    4. repec:idq:ictduk:14584 is not listed on IDEAS
    5. Picciotto, Sol & Gallardo, Agustina & Kadet, Jeffrey & Henn, Markus & Villanueva, Maria, 2017. "The G20 and the “Base Erosion and Profit Shifting (BEPS) Project”," IDOS Discussion Papers 18/2017, German Institute of Development and Sustainability (IDOS).
    6. Eyitayo-Oyesode Oladiwura Ayeyemi, 2020. "Source-Based Taxing Rights from the OECD to the UN Model Conventions: Unavailing Efforts and an Argument for Reform," The Law and Development Review, De Gruyter, vol. 13(1), pages 193-227, January.
    7. Hearson, Martin, 2018. "The challenges for developing countries in international tax justice," LSE Research Online Documents on Economics 73324, London School of Economics and Political Science, LSE Library.
    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).

    More about this item

    Keywords

    capital gains tax; corporation tax; double taxation agreement; foreign direct investment; international taxation; sub-Saharan Africa; Asia; tax treaty; withholding tax;
    All these keywords.

    JEL classification:

    • F53 - International Economics - - International Relations, National Security, and International Political Economy - - - International Agreements and Observance; International Organizations
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • K33 - Law and Economics - - Other Substantive Areas of Law - - - International Law
    • K34 - Law and Economics - - Other Substantive Areas of Law - - - Tax Law
    • N47 - Economic History - - Government, War, Law, International Relations, and Regulation - - - Africa; Oceania
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development

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