The effect of double taxation treaties and territorial tax systems on foreign direct investment: evidence for Spain

Abstract

The paper evaluates the effect of Double Taxation Treaties (DTTs) on Spain’s inward and outward Foreign Direct Investment (FDI) for the period 1993–2013. Estimates produce positive and statistically significant coefficients. However, there are some differences between the inbound and outbound samples, the type of DTT and the group of developed and developing FDI partner countries. Moreover, interpretation of results differs depending on the fixed or random effects estimation technique used. The paper also analyses the effect on FDI of the rules agreed in DTTs and applied by the investors’ residence country in order to correct international double taxation. The authors conclude that the tax saving derived from the application by Spain of the territorial system is positively related to investment from this country to abroad. However, the tax saving provided by the application by the partner countries of the territorial system does not have a significant effect on the investment of these countries into Spain.

Never-Ending the Application of Double Tax Treaties to Foreign Direct Investment

“…FDI plays an important role in avoiding double taxation of income in the two countries. Double Tax Treaties (DTT) is the main instrument to coordinate international taxation directly or can also be called a bilateral agreement between countries [8]. Also, there is another dilemma that some countries base taxes on the residence or citizenship principle.…”

Are Tax Treaties for the Benefits of Taxpayers or Maximisation of State Revenue? A Review of VAT Treaty between Lesotho and South Africa

“…Tax evasion and avoidance cost governments a lot of money, especially when they extend beyond national borders (Trandafir, 2017;Mugarura, 2018). DTAs are seen as innovative strategies to deal with tax avoidance and evasion (Baker, 2014;Mugarura, 2018;Castillo-Murciego & López-Laborda, 2019). DTAs do not only enhance revenue collection by governments but protect taxpayers against double taxation (Pham, Pham, & Ly, 2019;Baker, 2014).…”

“…Examples of these fees are administrative fees in the case of exporting vehicles, labour on repairs, and so on. While a number of studies have been undertaken to assess the impact of DTAs on Foreign Direct Investment (Selezen, 2017;Castillo-Murciego & López-Laborda, 2019;Baker, 2014), this study contributes on the implementation of DTAs in developing countries. It will further contribute to the literature related to DTAs in countries such as Lesotho.…”