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Research Institute of Industrial Economics (IFN) Working Paper Series

No 833:
The Effect of Tax Treaties on Multinational Firms: New Evidence from Microdata

Ronald B. Davies (), Pehr-Johan Norbńck () and Ayša Tekin-Koru ()

Abstract: This paper uses affiliate level data from Swedish multinationals to examine the impact of tax treaties on both overall affiliate sales and the composition of those sales. In line with previous results, we find little evidence for an effect of treaties on the level of total sales. We do, however, find that a tax treaty increases the probability of investment by a firm in a given country. In addition, we find that a treaty reduces exports to the parent but increases imports of intermediate inputs from the parent. This is consistent with treaties increasing the effective host tax. This suggests that tax treaties impact the behavior of multinationals along some dimensions but not along others.

Keywords: Tax Treaties; Multinational Firms; Foreign Direct Investment; (follow links to similar papers)

JEL-Codes: F21; F23; H25; (follow links to similar papers)

45 pages, May 19, 2010

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