Tax Sparing Clauses as a Policy Instrument of Developing Countries and Their Descent: Evidence from the Latin-American Tax Treaty Network

Aitor Navarro

Research output: Working paperResearch


Developing countries frequently grant corporate income tax incentives to attract foreign direct investment that would ultimately contribute to their economic growth. To secure the effectiveness of these measures at a cross-border level in the context of jurisdictions that eliminate double taxation through the credit method, tax sparing clauses grant a notional credit at residence -namely, a discount on the taxes due, even if no or lower taxes were paid at source-, to prevent the residence country to tax that income and thus allow the investor to retain the tax spared by the source country. This contribution examines the rationale of tax sparing, as well as the relevance of this policy instrument in the Latin-American tax treaty network by analyzing all clauses adopted in it. Also, the author ascertains the decline and probable collapse of tax sparing clauses due to the enforcement of CFC rules and the possible adoption of an income inclusion rule as proposed in the OECD GloBE proposal (Pillar 2).
Original languageEnglish
Place of PublicationFrederiksberg
PublisherCopenhagen Business School [wp]
Number of pages31
Publication statusPublished - 2020
Externally publishedYes
SeriesCBS LAW Research Paper


  • Tax
  • Developing countries
  • Tax sparing clause

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