IMF Working Papers

The Cost and Benefits of Tax Treaties with Investment Hubs: Findings from Sub-Saharan Africa

BySebastian Beer, Jan Loeprick

October 24, 2018

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Sebastian Beer, and Jan Loeprick. "The Cost and Benefits of Tax Treaties with Investment Hubs: Findings from Sub-Saharan Africa", IMF Working Papers 2018, 227 (2018), accessed 12/6/2025, https://doi.org/10.5089/9781484378007.001

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper investigates the costs and benefits of concluding double tax treaties with investment hubs. Based on a sample of 41 African economies from 1985–2015, the results suggest that signing treaties with investment hubs is not associated with additional investments; yet, these treaties tend to come with nonnegligible revenue losses. Building on a theoretical model, the paper investigates the role of treaty shopping in driving nominal investment flows and provides indirect evidence for its importance in the sample

Subject: Balance of payments, Corporate income tax, Double taxation, Foreign direct investment, Revenue administration, Taxes, Withholding tax

Keywords: Africa, CIT revenue, Corporate income tax, cost of capital, cost parameter, Domestic Resource Mobilization, Double Tax Treaties, Double taxation, effects of DTTS, FDI equation, Foreign direct investment, Global, income tax, Investment hubs, Mauritius, repatriation impact FDI stock, revenue efficiency, revenue loss, Sub-Saharan Africa, tax cost, tax revenue, tax revenue equation, Tax Treaty Policy, Withholding tax, withholding tax tax rate, WP

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