Share:


The correlation between double taxation conventions, tax compliance, and tax evasion. Empirical evidence from OECD countries

    Florin Cornel Dumiter   Affiliation

Abstract

The topics approached in this paper are of interest due to the divergent opinions that emerged in the media academics and practitioners concerning how the double taxation conventions are constructed, the official language in which an international convention must be written, and their de facto application, both in bilateral situations and among triangular or multilateral situations. To be more specific, the way in which double taxation conventions are constructed, signed, and implemented will generate changes in the level of direct taxes, at a certain time interval, both economically and legally with a special focus on tax compliance and tax evasion. Consequently, tax compliance is very important because of the behavior of the taxpayer and the willingness to pay taxes both on the national and international levels. Moreover, tax evasion is a serious problem that creates distortion and undermines worldwide trade and commerce. In this article, it is approached the complex relationship between double taxation conventions, tax compliance, and tax behavior in order to establish the connections and interactions between these three important aspects. The objective of this study is o evaluate and assess the interconnections between these three variables. The empirical study is revealed for selected comprehensive OECD countries with a panel data approach and with modeling techniques using Python software. The conclusions of this study reveal that between double taxation conventions, tax compliance, and tax evasion there is manifested strong connections both positive and negative, aspects highlighted by the empirical results, because the complex relationship manifested in practice regarding the stipulation of the law, the financial aspects and the application of fiscal policy, both on national and international levels.

Keyword : tax treaty, double taxation, tax behavior, tax culture, tax evasion

How to Cite
Dumiter, F. C. (2023). The correlation between double taxation conventions, tax compliance, and tax evasion. Empirical evidence from OECD countries. Technological and Economic Development of Economy, 29(3), 902–948. https://doi.org/10.3846/tede.2023.18260
Published in Issue
Apr 14, 2023
Abstract Views
976
PDF Downloads
843
Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 International License.

References

AbdelNabi, M., Wanas, K., & Mansour, S. (2021). How can tax compliance be incentives? An experimental examination of voice and empathy. Review of Economics and Political Sciences, 7(2), 87–207. https://doi.org/10.1108/REPS-05-2021-0053

Alonso, C., Feliz, L., Gil, P., & Pecho, M. (2021). Enhancing tax compliance in the Dominican Republic through risk-based VAT invoice management (IMF Working Paper, 21/231). https://doi.org/10.5089/9781513595924.001

Amah, N., Rustiarni, N. W., & Hatmawan, A. A. (2021). Tax compliance option during the Pandemic: Moral, sanction, and tax relaxation (Case study of Indonesian MSMEs taxpayers). Review of Applied Socio-Economic Research, 22(2), 21–36. https://doi.org/10.54609/reaser.v22i2.108

Arnold, B. J. (2012). Key practical issues to eliminate double taxation of business income. Bulletin for International Taxation, 343–350.

Bandi, Y. (2010). Double taxation in indirect tax laws: A move towards a uniform Goods and Services Tax (GST) regime. The IUP Journal of International Business Law, 9(1–2), 90–102.

Bankman, J., Nass, C., & Slemrod, J. (2015). Using smart return to reduce tax evasion (Stanford Public Law Working Paper, No. 2578432). https://doi.org/10.2139/ssrn.2578432

Bărbuța-Mișu, N., & Tudor, F. (2009). The international double taxation – causes and avoidance. Acta Universitatis Danubius. Œconomica, 5(1), 147–160.

Barthel, F., & Neumayer, E. (2015). Spatial dependence in asylum migration. Journal of Ethnic and Migration Studies, 41(7), 1131–1151. https://doi.org/10.1080/1369183X.2014.967756

Barthel, F., Busse, M., & Neumayer, E. (2009). The impact of double taxation treaties on foreign direct investment: Evidence from large dyadic panel data. Contemporary Economic Policy, 28(3), 366–377. https://doi.org/10.1111/j.1465-7287.2009.00185.x

Bhatia, M., Housden, R., & Wardzynski, A. (2018). AEOI – the world delivers on the new global standard. International Tax Review, 29(9), 18–21.

Blonigen, B. A., & Davies, R. B. (2000). Tax effects of bilateral tax treaties on U.S. FDI activity (NBER Working Paper No. 7929). https://doi.org/10.3386/w7929

Braun, J., & Fuentes, D. (2014). A legal and economic analysis of double taxation treaties between Austria and developing countries. Vienna Institute for International Dialogue and Cooperation (VIDC).

Braun, J., & Zagler, M. (2014). An economic perspective on double tax treaties with(in) developing countries. World Tax Journal, 6(3), 242–281.

Braun, J., & Zagler, M. (2015). Tax information exchange with developing countries and tax heavens (WU International Taxation Research Paper Series No. 2015 – 25). https://doi.org/10.2139/ssrn.2683551

Braun, J., & Zagler, M. (2017). The true art of the tax deal: Evidence on aid flows and bilateral double tax agreements. Centre for European Economic Research (ZEW), Viena.

Brezeanu, P., Dumiter, F., Ghiur, R., & Todor, F. (2018). Tax compliance at national level. Studia Universitatis “Vasile Goldiș” Arad – Economics Series, 28(2), 1–17. https://doi.org/10.2478/sues-2018-0006

Castillo-Murciego, Á., & López-Laborda, J. (2018). The effect of double taxation treaties and territorial tax systems on foreign direct investment: Evidence for Spain (Economics Discussion Papers, No 2018-21). Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2018-21

Chisik, R., & Davies, R. B. (2004). Gradualism in tax treaties with irreversible foreign direct investment. International Economic Review, 45(1), 113–139. https://doi.org/10.1111/j.1468-2354.2004.00119.x

Davies, R.B. (2003). The OECD Model tax treaty: Tax competition and two–way capital flows. International Economic Review, 44(2), 725–753. https://doi.org/10.1111/1468-2354.t01-1-00087

Davies, R. B., Norbäck, P. J., & Tekin-Koru, A. (2009). The effect of tax treaties on multinational firms: New evidence from microdata. The World Economy, 32(1), 77–110. https://doi.org/10.1111/j.1467-9701.2009.01158.x

De Groot, I. (2015). Exemption method in the EU Parent-Subsidiary Directive amended in respect of hybrid instruments: What about the credit method? EC Tax Review, 24(3), 158–165. https://doi.org/10.54648/ECTA2015016

Del Frederico, L., Montanari, F., & Giorgi, S. (2021). OECD approach on digital transformation of tax administrations and new taxpayers’ rights. International Tax Law Review, 2, 7–29.

Dudaş, S. (2011). Unilateral legislative measures and methods for avoiding the international double taxation. Anale. Seria Ştiinţe Economice, 17, 1053–1060.

Dulevski, S. (2021). Permanent establishment and fixed establishment in the context of the subsidiary and the digital economy. Economic Archive, 4, 36–52. https://ssrn.com/abstract=3998895

Dumiter, F., & Jimon, Ș. (2016). Double taxation conventions in central and eastern European countries. Journal of Legal Studies, 18(32), 1–12. https://doi.org/10.1515/jles-2016-0014

Dumiter, F., & Jimon, Ș. (2020). Theoretical and practical assessments of transfer prices. Legal evidence from Romanian case law. Journal of Legal Studies, 26(40), 1–18. https://doi.org/10.2478/jles-2020-0008

Dumiter, F., Berlingher, D., Opreț, A., & Todor, S. (2016). Double taxation conventions, structure, and evolution of the American tax system. Journal of Legal Studies, 17(31), 1–14. https://doi.org/10.1515/jles-2016-0001

Dumiter, F., Opreț, A., & Turcaș, F. (2014). Theoretical underpinnings vis - á - vis of double taxation problem. Journal of Legal Studies, 15(28), 83–99.

Dumiter, F., Turcaș, F., & Opreț, A. (2015). German tax system: Double taxation avoidance conventions, structure, and developments. Journal of Legal Studies, 16(30), 1–17. https://doi.org/10.1515/jles-2015-0006

Efobi, U., & Adejuno, O. O. (2021). Tax treaties and enterprise outcomes: Evidence from across developing African Countries (ICTD Working Paper, 134). Institute of Development Studies, Brighton. https://doi.org/10.19088/ICTD.2021.024

Egger, P., Larch, M., Pfaffermayr, M., & Winner, H. (2006). The impact of endogenous tax treaties on foreign direct investment: Theory and evidence. Canadian Journal of Economics, 39(3), 901–931. https://doi.org/10.1111/j.1540-5982.2006.00375.x

Ghani, E. K., Mohamed, N., Razak, H. S. A., & Ali, M. M. (2021). Influence of behaviourism, enforcement, and law clarity on tax compliance among e-commerce taxpayers. Journal of Management Information and Decision Sciences, 24(4), 1–9.

Gichuru, D. B., & Wahome, J. N. (2022). Influence of tax compliance cost on hostel owner’s compliance to rental Income tax in Laikipia West sub-County, Kenya. European Journal of Economic and Financial Research, 6(1), 21–32. https://doi.org/10.46827/ejefr.v6i1.1207

Goulder, R. (2020). New frontiers in transparency: Public disclosure of AEOI data. Tax Notes International – Falls Church, 99(10), 1403–1408.

Herbei, M., Dudaș, S., & Costea, A. (2010). Causes and effects of the international double taxation. Solutions of the conventions, model for avoiding the international double taxation. Finance – Challenges of the Future, 9(12), 29–35.

Hiddleston, J. (2021). Automatic exchange of information handbook. Bloomsbury Professional. https://doi.org/10.5040/9781526516541

Huang, X. (2018). Ensuring taxpayer rights in the era of automatic exchange of information: EU data protection rules and cases. Intertax – Alphen aan den Rinj., 46(3), 225–239. https://doi.org/10.54648/TAXI2018024

Ida, T. (2006). International tax competition and double taxation. Review of Urban & Regional Development Studies, 18(3), 192–208. https://doi.org/10.1111/j.1467-940X.2006.00121.x

Istok, M., & Kanderova, M. (2019). Debt/asset ratio as evidence of profit-shifting behavior in the Slovak Republic. Technological and Economic Development of Economy, 25(6), 1293–1308. https://doi.org/10.3846/tede.2019.11338

Jackson, G., & Brown, H. (2021). A practitioner’s guide to international tax information exchange regimes: DAC6, TIEAs, MDR, CRS, and FATCA. Spiramus Press.

Juruss, M. (2021, July). Possible improvement of methodology for estimation of the illicit tobacco market. In Proceedings of the International Workshop Accounting and Taxation (IWAT 2021) (pp. 151–166). Porto, Portugal.

Jusoh, Y. M. M., Mansor, F. A., Razak, S. N. A. A., & Noor, W. N. B. W. M. (2021). Tax effects of tax knowledge, tax competition, and tax morale towards tax compliance behavior among salaried group in Malaysia. Advances in Business Research International Journal, 7(2), 250–266. https://doi.org/10.24191/abrij.v7i2.14326

Kahlenberg, C., & Kopec, A. (2016). Hybryd mismatch arrangements – A myth or a problem that still exists? World Tax Journal, 8(1), 37–78.

Kantohe, M. S. S., & Kambey, J. (2021). Empirical study of moral obligations, trust in Government, and intention to be compliant toward tax compliance. International Journal of Applied Business and International Management, 6(3), 13–22. https://doi.org/10.32535/ijabim.v6i3.1325

Kassa, E. T. (2021). Factors influencing taxpayers to engage in tax evasion: Evidence from Woldia City administration micro, small and large enterprise taxpayers. Journal of Innovation and Entrepreneurship, 10, 1–16. https://doi.org/10.1186/s13731-020-00142-4

Krahenbuhl, B. (2018). Personal data protection rights within the framework of international automatic exchange of financial account information. European Taxation, 58(8), 354–362.

Kuzniacki, B. (2015). The need to avoid double economic taxation triggered by CFC Rules under tax treaties and the way to achieve it. Intertax, 43(12), 758–772. https://doi.org/10.54648/TAXI2015070

Larsen, L. B., & Brogger, B. (2021). Tax compliance dancing. The importance of time and space in taxing multinational corporations. Journal of Legal Anthropology, 5(1) 85–109. https://doi.org/10.3167/jla.2021.050104

Lejour, A. (2014). The foreign investment effects of tax treaties (CPB Discussion Paper, 265).

Levenko, N., & Staehr, K. (2021). Tax compliance in post-transition: You and your friends matter, not the Government (Working Papers of Eesti Pank 7/2021).

Liotti, B. F. (2022). Taxpayers’ protection: Do international, regional, and domestic instruments guarantee adequate rights in tax (A)Eol? Intertax – Alphen aan den Rinj, 50(2), 138–158. https://doi.org/10.54648/TAXI2022014

Lipniewicz, R. (2021). Subsidiary as a fixed establishment. Krytyka Prawa, 13(2), 78–94. https://doi.org/10.7206/kp.2080-1084.450

Lokken, L., & Kitamura, Y. (2010). Credit vs. Exemption: A comparative study of double tax relief in the United States and Japan. Northwestern Journal of International Law & Business, 30(3), 621–646.

Malima, A. E., Pillay, S., & Obalade, A. A. (2021). Tax compliance in EFD-enabled environment: Evidence from a developing economy. Accounting and Financial Control, 3(1), 53–68. https://doi.org/10.21511/afc.03(1).2020.05

Marchgraber, C. (2014). The avoidance of double non–taxation in double-tax treaty law: A critical analysis of the subject–to–tax clause recommended by the European Commission. Ec Tax Review, 23(5), 293–302. https://doi.org/10.54648/ECTA2014027

Marino, G. (2020). Beyond the automatic exchange of information: DAC 6, its strengths and its Achilles heels. International Tax Law Review, 1, 203–216.

Marques, I. (2022). Skipping out on the check: Institutional quality, tax evasion, and individual preferences for social policy (Political Sciences Working Series, WP BRP 85/PS). https://doi.org/10.2139/ssrn.4018304

McGill, R. (2017). What is the future of FATCA? Tax Notes International – Falls Church, 85(9), 815–818.

Noseda, F. (2022). Eu documents reveal conflict over public registers and automatic exchange of information. Tax Notes International, 107(5), 561–565.

Oberson, X., & Papadopoulos, L. (2020). Exchange of information: The challenges ahead. Trusts & Trustees, 26(1), 58–71. https://doi.org/10.1093/tandt/ttz122

Okafor, O. N. (2022). Shaming of tax evaders: Empirical evidence on perceptions of retributive justice and tax Compliance intentions. Journal of Business Ethics, 1–19. https://doi.org/10.1007/s10551-021-05011-y

Olabisi, J., Agbetunde, L. A., Akinrinola, O. O., & Asaolu, T. O. (2021). Factor analysis of tax compliance value chain among Lagos State taxpayers. Economics, Management, Innovation, 13(1), 39–52.

Oladipo, O., Nwanji, T., Eluyela, D., Godo, B., & Adegboyegun, A. (2022). Impact of tax fairness and tax knowledge on tax compliance behavior of listed manufacturing companies in Nigeria. Problems and Perspectives in Management, 20(1), 41–48. https://doi.org/10.21511/ppm.20(1).2022.04

Opreț, A., Turcaș, F., Dumiter, F. C., & Brezeanu, P. (2017). Tax evasion between fraud and legality. Studia Universitatis Vasile Goldiș Arad – Economics Series, 27(4), 1–11. https://doi.org/10.1515/sues-2017-0013

Paolini, D., Pistone, P., Pulina, G., & Zagler, M. (2012). Tax treaties and the allocation of taxing rights with developing countries (WU International Taxation Research Paper Series No. 2012-08). https://doi.org/10.2139/ssrn.2174976

Pattiasina, V., Noch, M. Y., Sondaja, Y., Kartim, Akbar, F., & Anakotta, F. M. (2021). Extension of moderated mediation model knowledge of taxation and tax compliance by tax socialization and taxpayer awareness. Academy Entrepreneurship Journal, 27(2S), 1–11.

Petkova, K., Stasio, A., & Zagler, M. (2018). On the relevance of double tax treaties (WU International Taxation Research Paper Series No. 2018-05). https://doi.org/10.2139/ssrn.3126593

Pham, A. D., Pham, H., & Ly, K. C. (2019). Double taxation treaties as a catalyst for trade developments: A comparative study of Vietnam’s relations with ASEAN and EU member states. Journal of Risk Financial Management, 12(4), 172. https://doi.org/10.3390/jrfm12040172

Pinheiro, J. M., Diogo, T. A., & Samagaio, A. (2021). Tax compliance: Factors that influence taxpayer invoice requests in Portugal. Revista Brasiliera de Gestao de Negocios, 23(4), 619–634. https://doi.org/10.7819/rbgn.v23i4.4133

Radu, M. (2012). International double taxation. Procedia – Social and Behavioral Sciences, 62, 403–407. https://doi.org/10.1016/j.sbspro.2012.09.065

Rixen, T. (2008). The institutional design of international double taxation avoidance (WZB Discussion Paper No. SP IV 2008-302). Wissenschaftszentrum Berlin für Sozialforschung. https://doi.org/10.2139/ssrn.1210402

Roche, S., Ryan, A., & Gillen, D. (2022). DAC7: Another step on the tax transparency journey, with a focus on digital platforms. Irish Tax Review, 1(10), 1–10.

Rodrigues, M., Alves, M., Vale, J., Vale, V. T., & Silva, R. (2021). Control in headquarters-subsidiary relationship: A case study focused on expatriate and managers perspectives. Academy of Strategic Management Journal, 20(6S), 1–16.

Ronco, S. M. (2020). Data protection in direct tax matters and developments from the EU standpoint: The case of automatic exchange of information. International Tax Studies (ITAXS), 3(4), 1–20.

Saragih, A. H., & Putra, D. N. S. (2021). Ethical perception of tax evasion in Indonesia: Determinants and consequences on voluntary tax compliance. Jurnal Akuntansi dan Keuangan, 23(1), 1–14. https://doi.org/10.9744/jak.23.1.1-14

Satande, J. T., Hove, U., & Jachi, M. (2021). Taxation policy and tax administration efficiency: Evidence from Zimbabwe’s transfer pricing legislation of 2016. Aegaeum Journal, 9(4), 360–374.

Shafique, A., Abasi, M. S., Khalid, M. N., Awais, M., & Hassan, M. (2021). The impact of taxpayer perception on tax compliance moderated by adoption of e-tax system. Sarhad Journal of Management Sciences, 7(1), 219–236.

Sherman, R., & Brinker, T. (2012). Does a foreign tax credit exist at the state level? Double taxation and how states treat foreign taxes paid for individuals, society of financial service professionals. Journal of Financial Service Professionals, 11(2), 12–15.

Smit, D. (2016). International juridical double non–taxation and state aid. EC Tax Review, 25(2), 109–112. https://doi.org/10.54648/ECTA2016011

Smith, D. (1977). Relief from double taxation of dividend income. Harvard Business Review, 87–94.

Solikah, A. (2022). Pengaruh money ethics, pemahaman tri pantangan DAN tax evasion: Religiusitas sebagai pemoderasi. LITERA: Jurnal Literasi Akuntansi, 2(1), 35–43. https://doi.org/10.55587/jla.v2i1.20

Stankevicius, E., & Leonas, L. (2015). Hybrid approach model for prevention of tax evasion and fraud. Procedia – Social and Behavioral Sciences, 213, 383–389. https://doi.org/10.1016/j.sbspro.2015.11.555

Steenkamp, L. A (2014). The permanent establishment concept in double tax agreements between developed and developing countries: Canada/South Africa as a case in point. International Business & Economics Research Journal, 13(3) 539–552. https://doi.org/10.19030/iber.v13i3.8591

Stevens, S. A., & Wamelen, J. T. van (2021). The DAC7 proposal and reporting obligation for online. EC Tax Review – Alphen aan den Rinj, 30(1), 24–30. https://doi.org/10.54648/ECTA2021003

Subadriyah, & Harto, P. (2021). Determinants of personal tax compliance. Accounting, 7, 1675–1680. https://doi.org/10.5267/j.ac.2021.5.002

Tafa (Bungo), G. (2013). Analysing double taxation: The Albanian case. International Journal of Management Cases, 15(3), 109–121.

Tiwari, G. (2021). Determinants of tax compliance behavior among rental income earners in Pokhara. The Journal of Nepalese Business Studies, 14(1), 69–81. https://doi.org/10.3126/jnbs.v14i1.41491

Trung, D. L., Hang Thi, N. P., & Hang Le, T. T. (2021). Determinants affecting tax compliance of FDI enterprises in Ho Chi Minh City. Academy of Strategic Management Journal, 20(6), 1–11.

Zagler, M., & Zanzottera, C. (2012). Corporate income taxation uncertainty and foreign direct investment (WU International Taxation Research Paper Series No. 2012-07). https://doi.org/10.2139/ssrn.2174928

Zhou, J., & Wong, Z. (2021). Power allocation and investment efficiency of parent-subsidiary company – Empirical analysis based on the perspective of subdivision of power. Modern Economy, 12(9), 1321–1338. https://doi.org/10.4236/me.2021.129069