Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

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

Ronald B. Davies (), Pehr-Johan Norbäck () and Ayça Tekin-Koru ()
Additional contact information
Ronald B. Davies: University of Oregon
Pehr-Johan Norbäck: Research Institute of Industrial Economics (IFN), Postal: P.O. Box 55665, SE-102 15 Stockholm, Sweden
Ayça Tekin-Koru: Oregon State University

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

JEL-codes: F21; F23; H25

45 pages, May 19, 2010

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