Optimal tax routing: Network analysis of FDI diversion

Maarten van't Riet*, Arjan Lejour

*Corresponding author for this work

Research output: Contribution to journalArticleScientificpeer-review

22 Citations (Scopus)
17 Downloads (Pure)


The international corporate tax system is considered a network. Just like for transportation, “shortest” paths are computed, which minimize tax payments for multinational enterprises when they repatriate profits. We include corporate income tax rates, withholding taxes on dividends, double tax treaties, and double taxation relief methods. We find that treaty shopping leads to an average potential reduction of the tax burden on repatriated dividends of about 6% points. An indicator for centrality in the tax network identifies the UK, Luxembourg, and the Netherlands as the most important conduit countries. Low-tax havens do not have a crucial role in reducing dividend repatriation taxes. By contrast, tax haven financial centres do. In the regressions we find that the centrality measures are robustly significant explanatory variables for bilateral FDI stocks. This also holds for our treaty shopping indicator.
Original languageEnglish
Pages (from-to)1321-1371
JournalInternational Tax and Public Finance
Issue number5
Publication statusPublished - Oct 2018


  • Corporate taxation
  • Tax treaties
  • Treaty shopping
  • Tax havens
  • Shortest path


Dive into the research topics of 'Optimal tax routing: Network analysis of FDI diversion'. Together they form a unique fingerprint.

Cite this