Bilateral tax treaties (BTTs) are intended to promote foreign direct
investment through double-taxation relief. Using BEA firm-level
data, we find a positive effect of BTTs on FDI, which is larger for
firms that use differentiated inputs. BTTs allow multinational firms
to request assistance from treaty partners' governments if they have
a grievance about how tax liabilities are determined. These provisions
disproportionately benefit firms that use inputs for which an
arm's-length price is difficult to observe, since allocation of earnings
across countries is more complex. We find differential BTT
effects for both sales by existing affiliates and entry of new affiliates.
Blonigen, Bruce A., Lindsay Oldenski, and Nicholas Sly.
"The Differential Effects of Bilateral Tax Treaties."
American Economic Journal: Economic Policy,
Multinational Firms; International Business
Business Taxes and Subsidies including sales and value-added (VAT)
International Fiscal Issues; International Public Goods