WHEN DO DEVELOPING COUNTRIES
NEGOTIATE AWAY THEIR CORPORATE
Department of International Relations, London School of Economics, London, UK
Abstract: Developing countries have concluded thousands of bilateral tax treaties, which restrict
their ‘taxing rights’ over international investment. Qualitative case studies of these negotiation
outcomes emphasize power politics, knowledge asymmetries and negotiating capability in the
eventual distribution of taxing rights between signatories, yet such insights are absent from cross-
country quantitative work. This paper bridges the gap by replicating two quantitative studies,
introducing new data on countries’ ability to mobilize tax revenue and the outcomes of tax treaty
negotiations. It provides statistical support for the insights from qualitative research. The size of a
government’s revenue base, and its reliance on corporate tax, might affect the salience of the revenue
sacriﬁce in policy makers’ minds. These variables inﬂuence the likelihood of signing a tax treaty and
the particular concessions made. Power asymmetries between signatories lead to more unequal
distributions of taxing rights away from developing countries, in contrast to the ﬁndings of earlier
studies. Developing countries also become better negotiators as they gain experience. © 2018
UNU-WIDER. Journal of International Development published by John Wiley & Sons, Ltd.
Keywords: developing countries; foreign direct investment; corporate taxation; double taxation
treaties; multinational corporations
JEL Classiﬁcation: F53; H25; K34; O23
Since the 1960s, developing countries have signed over 2000 bilateral tax treaties (BTTs).
Often referred to as ‘double taxation agreements’, these treaties’ main effect is to constrain
*Correspondence to: Martin Hearson, Fellow in International Political Economy, Department of International
Relations, London School of Economics, London, UK.
Although the term ‘bilateral tax treaty’ (BTT) is used throughout this paper, it is interchangeable with the terms
‘double taxation treaty’, ‘double taxation agreement’ and ‘double taxation convention’.
© 2018 UNU-WIDER. Journal of International Development published by John Wiley & Sons, Ltd.
Journal of International Development
J. Int. Dev. 30, 233–255 (2018)
Published online in Wiley Online Library
(wileyonlinelibrary.com) DOI: 10.1002/jid.3351
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