The Network of Bilateral Tax Treaties of the Slovak Republic – Does It Mirror Challenges of the Globalization through Digitalization? A Cluster Analysis Approach

Jana Kubicová,T Kliestik

doi:10.1051/shsconf/20219202034

Abstract

Research background: Globalisations and movement of production factors - especially capital and workforces, call for elimination of double international juridical taxation and consequently for negotiation of bilateral tax treaties. Recently global network of bilateral tax treaties has reached immense size. Purpose of the article: The purpose of this paper is to analyse the network of bilateral tax treaties of the Slovak republic from the point of view of distance and level of development of the Contracting States. Methods: To reach this goal a cluster analysis method is applied where clustering variables are distance between capital cities of the Contracting States and measures of economic development. Findings & Value added: The main finding is that the Slovak republic’s bilateral tax treaties are clustered into 11 clusters, and three of them are the most numerous. This implies, that Slovak republic follows certain pattern when chosing Contracting Party. It is also found, that geographical location and distance have diminishing roles. Instead economic development and atractiveness of the country in terms of GDP per capita and total FDI inflow play more important role. These findings prove, that Slovakia no more follows old-fashioned pattern of chosing Contracting Parties based predominantly on distances, instead it adjust its policy of concluding bilateral tax treaties to globalization through digitalisation trend.

Highlights

Increasing international business brings together cross-border transactions and financial and income flows
The outcome of the hierarchical cluster analysis based on similarities of geographical distance from the capital city of Slovakia, economic development measured by GDP per capita, and FDI inflows is that 71 Contracting States are clustered into eleven different clusters
The results of cluster analysis prove that there is clear pattern that underlines the policy of the Slovak republic when chosing countries to negotiate and conclude bilateral tax treaties

Summary

Introduction

Increasing international business brings together cross-border transactions and financial and income flows. Taxing identical income of the same person by the same taxes at the same time in two taxing jurisdictions leads to double international juridical taxation. This in turn causes higher costs of doing business and non-business acitvities in the source country which harms international business, lessens mobility of capital and people. Souvreign States activelly search for ways how to eliminate double international juridical taxation. Even if it is possible to eliminate double income taxation by autonomous measures, like exemption method, bilateral way and cooperation seems to be more beneficial [4]. There are several benefits of bilateral treaties on income and capital taxes: 1 reciprocity; 2 dispute resolution mechanism; 3 predictability; 4 treaty provisions individually suited for needs of individual pair of Contracting States

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Methods

Results

Conclusion