Bilateral tax competition in double tax treaties between developed and developing countries

This paper investigates tax competition in withholding tax rates signed under double tax treaties between developed and developing countries. We document a decline in average withholding tax rates since 1990 and attribute this trend to tax competition. As opposed to traditional tax competition, where every foreign investor benefits from lower tax rates, tax treaties allow countries to compete bilaterally, cutting tax rates for investors from a specific country and leaving taxes for everyone else unaffected. We test our predictions empirically for the four different types of withholding tax rates on passive income in more than 900 double tax treaties. We find strong support for a positive relationship in withholding tax rates in tax treaties signed by developing countries in relation to the same origin country of investment, supporting the notion of tax competition.

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Publication Details

Journal
International Tax and Public Finance
Published
2025-03-24
DOI
https://doi.org/10.1007/s10797-025-09884-x
Citations
1
Primary Topic
Corporate Taxation and Avoidance
Type
article
Field-Weighted Citation Impact
3.91

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article

Bilateral tax competition in double tax treaties between developed and developing countries

Andrzej Stasio, Kunka Petkova, Martin Zagler
1 citations
International Tax and Public Finance
Corporate Taxation and Avoidance
3.91
article

Bilateral tax competition in double tax treaties between developed and developing countries

Andrzej Stasio, Kunka Petkova, Martin Zagler
article en
1 citations

Abstract

This paper investigates tax competition in withholding tax rates signed under double tax treaties between developed and developing countries. We document a decline in average withholding tax rates since 1990 and attribute this trend to tax competition. As opposed to traditional tax competition, where every foreign investor benefits from lower tax rates, tax treaties allow countries to compete bilaterally, cutting tax rates for investors from a specific country and leaving taxes for everyone else unaffected. We test our predictions empirically for the four different types of withholding tax rates on passive income in more than 900 double tax treaties. We find strong support for a positive relationship in withholding tax rates in tax treaties signed by developing countries in relation to the same origin country of investment, supporting the notion of tax competition.

International Tax and Public FinanceVol. 33(1)
Università degli Studi del Piemonte Orientale “Amedeo Avogadro” (IT), Federal Ministry of Finance (DE), European Commission (BE), Piedmont University (US)
University of Oxford, Austrian Science Fund, Oesterreichische Nationalbank
Partnerships for the goals
Openalex Percentile: Top 9%
Corporate Taxation and Avoidance
3.91
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