The impact of unilateral tax treaty terminations on FDI

Abstract

This study analyses the effect of unilateral tax treaty terminations on FDI. It identifies two major patterns—developing countries terminating tax treaties with developed countries for the reasons of tax revenue losses and developed countries terminating treaties with other developed countries for the reasons of non-taxation of pensioners. The study focuses on the effects of terminations for developing countries. To assess the effects of terminations on FDI, a theoretical model is developed incorporating factors such as the rate of return on FDI, exit and entry costs, termination-induced distortion and the probability of concluding new treaties. This contributes to our understanding of the impact of tax treaty terminations on FDI and may have significant implications for policymaking and investment strategies.