Network analysis reveals new information on tax treaties

Mathematical analysis of a data set collected by Centraal Planbureau (CPB), the Netherlands Bureau for Economic Policy Analysis, revealed new information on how bilateral tax treaties can be exploited to form ‘tax routes’ that minimize profit taxes.

Date: Feb 16, 2015

Mathematical analysis of a data set collected by Centraal Planbureau (CPB), the Netherlands Bureau for Economic Policy Analysis, revealed new information on how bilateral tax treaties can be exploited to form ‘tax routes’ that minimize profit taxes.

Sven Polak, intern at CWI’s Networks & Optimization group, developed network analysis algorithms to investigate the network formed by the tax treaties between 108 countries. His investigations confirmed earlier conclusions of CPB that the Netherlands is among the top five intermediary countries on tax routes - conduit countries - of the world.The algorithms could also be used to derive new insights.Polak showed that there exists a group of 64 countries between which companies can freely transfer their profits, without paying any taxes. He also showed that if the Netherlands would want to improve its current fifth place as a conduit country, the best course of action would be to reduce the outgoing dividend tax rates to India, Brazil and China to zero.

This Master’s thesis is a cooperation between CWI and Centraal Planbureau and was supervised by CWI researcher Guido Schäfer. Polak graduated last month with honours ('cum laude') at the University of Amsterdam.

 

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