Introduction

Most economists approach the subject of the taxation of foreign investment in an asymmetric fashion. On the one hand, when describing the company tax systems which exist in various countries they are extremely taxonomical and specific. On the other hand, the effects of the tax system itself are analysed in highly stylised models of the economy in which the institutional character of the specific tax provisions is completely lost. In many respects this characterisation of the literature is one which might equally well have applied to many studies of domestic company tax systems in the 1960s. As a result of these deficiencies in the analysis of international tax environments, there is a substantial degree of unawareness of the manner in which tax considerations might affect the financial decisions of multinational companies.

This paper represents a clear break from the approaches mentioned above. It has two objectives. The first is to suggest a framework in which to analyse the various tiers of company taxes that bear on international direct investment income. The general classification chosen resembles that developed at length in King (1977) and applied to the examination of the corporate tax systems of several countries in King and Fullerton (1984). This approach permits a straightforward comparison of different types of double tax agreements as well as the examination of alternative systems of integrating the taxation of corporations with that of dividends.