Tax Treaties and the Allocation of Taxing Rights With Developing Countries

Abstract

Worldwide income taxation in the country of residence is a legal dogma of international taxation. We question this dogma from the perspective of relations between developed and developing countries from a legal and economic perspective, and make a modern and fair proposal for tax treaties. We will show under which conditions a developing and a developed country will voluntarily sign a tax treaty where information is exchanged truthfully and whether they should share revenues. Moreover, we will demonstrate how the conclusion of a tax treaty can assist in the implementation of a tax audit system.

Keywords: international corporate income taxation, tax treaties, revenue sharing, asymmetric information, uncertainty, locational decisions, principal-agent models

JEL Classification: F53, H25, H87, D82