The Effect of Double Tax Treaties on Foreign Direct Investment Inflows: The Study on the Indonesia Treaties Network

This paper examines the impact of the Indonesia double tax treaties (DTTs) network with developed countries on Indonesia’s inward foreign direct investment (FDI) for the period 2005-2017 and investigates the causes of the result. Using Indonesia DTTs as a dummy variable and other data under the Capability Maturity Model (CMM) framework over 41 sample countries, this paper finds that the Indonesia DTTs network with developed countries does not have any statistically significant correlation with the inward FDI. When the analysis is extended to examine the effect of the DTTs in three and six years after the implementation of the DTTs, the results remain the same. This paper finds also that, in the case of Indonesia, DTTs do not affect the inward FDI because foreign investors consider more on the non-tax factors and most of Indonesia’s DTTs were not negotiated for economic reasons.