Mutual Agreement Procedure and Foreign Direct Investments: Evidence from Firm-level Data
50 Pages Posted: 2 Oct 2023 Last revised: 27 Nov 2023
Date Written: August 1, 2023
This paper investigates the association between the effectiveness of mutual agreement procedures provided for in bilateral tax treaties (MAP) and foreign direct investments by analyzing MAP statistics and distinct MAP components. Using firm-level ownership data, we find that MNEs invest more frequently in countries with good MAP policy structures and qualities (e.g., MAP components and fast dispute resolution). Vertically integrated MNEs and small parent MNEs most favor countries with several effective MAP components. Overall, we provide novel evidence on MNEs’ investment responses to effective MAP, evidence that is crucial for policymakers who aim to reduce tax disputes and double taxation.
Keywords: location probability, tax certainty, mutual agreement procedure
JEL Classification: F23, H25, O57
Suggested Citation: Suggested Citation