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Bargaining over the Avoidance of Double Taxation: Evidence from German Tax Treaties

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Previous empirical studies have mainly analyzed tax competition, neglecting the role of tax cooperation in international taxation. We focus on German double taxation agreements (DTAs) and show for up to 45 tax treaties that the bargaining outcomes depend on investment asymmetries between the countries. A transition from a purely symmetrical country pair to a situation where foreign direct investment (FDI) flows in only one direction would increase on average the negotiated withholding tax rate by roughly 5 percentage points. We also show that bargaining over DTAs is not only about withholding tax rates, but also about the definition of a permanent establishment (PE). Our results are robust with regard to the concept of investment asymmetries (either in shares or levels) and different operationalizations (FDI stocks or sales).
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Document Type: Research Article

Publication date: 2009-12-01

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  • As one of the world's oldest professional journals in public finance, founded in 1884, FinanzArchiv (FA) publishes original work from all fields of public economics which are of interest to an international readership, e.g. taxation, public debt, public goods, public choice, federalism, market failure, social policy, and the welfare state. Special emphasis is on high-quality theoretical and empirical papers on current policy issues.

    FA is a peer-reviewed journal commited to a prompt turnaround of submissions.

    FA is listed in the Social Science Citation Index (SSCI), in Current Contents/Social and Behavioral Sciences, in Econ Lit, in the Journal of Economic Literature, in IDEAS and RePEc and in the International Bibliography of the Social Sciences.

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