Abstract
In order to evaluate the impact of Double Taxation Treaties (DTTs) on the Foreign Direct Investment (FDI), we analysed the impact of a DTT implementation on both the number of cross-border acquisitions and the average value of M&A deals between companies from the countries that signed the DTT. Moreover, the impact of DTTs on the takeover bid premiums is analysed in order to access if companies are willing to pay higher premiums after the DTT is implemented and whether the impact on the premium is immediate or gradual. Overall, our findings lead us to conclude that DTTs effectively promote FDI.
Highlights
In the introduction to its model tax convention, Organization for Economic Co-operation and Development (OECD) emphasises the harmful effects that double taxation has on the movement of capital in the development of inter-country economic relations and the importance of removing obstacles resulting from double taxation (OECD, 2014)
In order to evaluate the impact of Double Taxation Treaties (DTTs) on the Foreign Direct Investment (FDI), we analysed the impact of a DTT implementation on both the number of cross-border acquisitions and the average value of M&A deals between companies from the countries that signed the DTT
The dependent variable is the number of deals made by each of the pairs considered for a given year and the independent variable of main interest is a dummy indicating whether there is a DTT in force
Summary
In the introduction to its model tax convention, Organization for Economic Co-operation and Development (OECD) emphasises the harmful effects that double taxation has on the movement of capital in the development of inter-country economic relations and the importance of removing obstacles resulting from double taxation (OECD, 2014). In order to solve this problem, OECD developed a model for country-pairs to use in negotiating DTTs which is widely used all around the world. Despite the efforts made to solve double taxation issues, it is not clear that Double Taxation Treaties (DTTs) have a positive effect on Foreign Direct Investment (FDI). A possible explanation for the inconsistencies shown by previous literature is the fact that DTTs aim to eliminate the double taxation problem in order to facilitate the movement of capital between countries and intend to prevent tax evasion.
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
