The statistics presented show the surprisingly high proportion of irrelevant tax treaties, contrary to national law and tax treaties. Even excluding the DT between EU countries taking into account the particular position of the parent-subsidiary directive, we find that more than 70% of irrelevant tax treaties are maintained. This last observation confirms that irrelevant ADL DTTTs are not specific to the EU, but are a network-wide phenomenon. It also shows the growing role of national legislation in preventing double (economic) taxation and the extent of national legislative changes. Footnote 16 Overall, we believe that our results highlight empirically mixed results in the literature. In particular, we are convinced that our results underline the importance of recognizing the international tax system as a network and that they have a significant impact on tax treaties by distinguishing their position in relation to domestic law and all other treaty in the network. Tax treaties can only have an impact on foreign direct investment if they reduce the tax burden under the conditions of national legislation, and their final effects will depend on their relevance in the existing global network of double taxation conventions. Any contract between third countries can compromise the relevance of a single tax treaty, which means that countries lose some of their ability to set a tax policy because of their contractual purchases. Anderson, J. E., Yotov, Y. (2016). Terms of trade and overall efficiency effects of free trade agreements, 1990-2002. Journal of International Economics, 99, 279-298.

These include countries that have a territorial tax system in which all foreign profits are tax-exempt, and countries that introduce global taxation with a participation exemption for foreign dividends. Some countries exempt only 95% of dividends received with a foreign tax credit or without dividend relief for the remaining 5%. Other countries exempt 100% of the dividends received, but prohibit the deduction of certain participation-related expenses. To simplify the analysis, we ignore these different characteristics. Neumayer, E. (2007). Do double taxation conventions increase foreign direct investment to developing countries? The Journal of Development Studies, 43 (8), 1501-1519. Braun, J., Zagler, M. (2014). An economic perspective on double taxation agreements with developing countries.

World Tax Journal, 6 (3), 242-281. We describe the entire international network of double taxation agreements, with a series of tax treaties presented in Chart 1 and a measure of bilateral taxation summarized in Table 2. Our first variable is a forgery that verifies the presence of a DTT between two countries, contract. This is the standard variable used in the previous literature. Pairs of countries that do not have a contract will be our reference category throughout our estimates. For each year in our sample, we measure the direct tax gap between two countries, taking into account a possible tax agreement between these two countries, DirectTaxDistance. About half of the countries in our sample have an exemption scheme under which foreign dividends are not taxed in the country of residence (Eq. 5) – see also Table 3.Footnote 1 Other countries subject the dividends received to the taxation of the country of residence at the corporate tax rate (t_R).

Most of these countries avoid double taxation by accounting for taxes paid in the jurisdiction of the sources on the amount of dividends paid (Eq).