Withholding tax rates on dividends: symmetries versus asymmetries or single‑ versus multi‑rated double tax treaties by Kunka Petkova published by International Tax and Public Finance (10/2020).
Out of all double tax treaties (DTTs) in force in 2012, around 41% are symmetric (single-rated) and 59% are asymmetric (multi-rated), i.e., they prescribe diferent dividend withholding tax rates depending on the foreign investor’s ownership fraction. The paper investigates the reasons for this phenomenon, namely why some countries in their DTTs prefer homogenous withholding tax rates over separate rates for participation and portfolio dividends. In a theoretical model, I demonstrate why home countries may have an interest in a high withholding tax rate in the host country, even though they do not receive the revenue from this tax. Further, I fnd confrming evidence that a reason for having multi-rated withholding taxes on dividends is an existing spatial dependence on the rates of the countries’ peers that may be a driving factor for setting multi-rated taxes. Finally, I confrm that the spread itself (i.e., the diference between the portfolio and participation dividends negotiated in the tax treaty) is also afected by the peer countries.
