Mutual Agreement Procedure and Foreign Direct Investments: Evidence from Firm-level Data

50 Pages Posted: 2 Oct 2023 Last revised: 27 Nov 2023

See all articles by Matthias Petutschnig

Matthias Petutschnig

Vienna University of Economics and Business

Xixi Zhang

Vienna University of Economics and Business

Date Written: August 1, 2023

Abstract

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

Petutschnig, Matthias and Zhang, Xixi, Mutual Agreement Procedure and Foreign Direct Investments: Evidence from Firm-level Data (August 1, 2023). WU International Taxation Research Paper Series No. 2023-06, Available at SSRN: https://ssrn.com/abstract=4589030 or http://dx.doi.org/10.2139/ssrn.4589030

Matthias Petutschnig

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Building D 3
Vienna, Wien A-1020
Austria

HOME PAGE: http://www.wu.ac.at

Xixi Zhang (Contact Author)

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

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