Separating the Opposing Effects of Bilateral Tax Treaties / Bruce A. Blonigen, Lindsay Oldenski, Nicholas Sly.

Format:

Book

Author/Creator:

Blonigen, Bruce A.

Contributor:

National Bureau of Economic Research.

Oldenski, Lindsay.

Sly, Nicholas.

Series:

Working Paper Series (National Bureau of Economic Research) no. w17480.

NBER working paper series no. w17480

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2011.

Summary:

Bilateral tax treaties (BTT) are intended to promote foreign direct investment and foreign affiliate activity through double taxation relief. However, BTTs also typically contain provisions that facilitate sharing of tax information between countries intended to curtail tax avoidance by multinational firms. These provisions should disproportionately affect firms that intensively use inputs for which an arms-length price is easily observed, since strategic transfer practices that manipulate tax liabilities are no longer effective with information sharing between countries. Using BEA firm-level data we are able to separately estimate the impacts of double-taxation relief and sharing of tax information on investment behavior of US multinational firms. We find a significant positive effect of new tax treaties on foreign affiliate activity between member nations that is offset (and even reversed) the more a firm relies on inputs traded on an organized exchange (i.e., inputs for which the arms-length price is easily observed). We find these opposing BTT effects for both the intensive margin (sales of existing affiliates) and the extensive margin (entry of new affiliates).

Notes:

Print version record

October 2011.