Currently, this image is making its rounds on the Internet. While some are baffled by this question, I am not. I believe that, if dogs wore pants, they would wear them like the second dog in the picture, over their butt and hind legs. I believe this is the way dogs would wear pants for two reasons.
1) It corresponds to how dogs wear shirts/sweaters.
When people currently dress their dogs up, they put them in sweaters or shirts that cover the front half of the dog's body, like this. If the dog wore pants with this sweater, they would be worn on the back half of the body (the part not covered by the sweater).
2) It corresponds to how we wear pants.
We wear pants on the lower half of our body, covering our butt/groin and our legs (our lower limbs). If dogs wore pants, it seems as though they would also wear them on the lower half of their body, covering their butt and their back legs (their lower limbs).
Things that could change my view:
Why it would be better for them to wear them like the first dog in the picture.
Why wearing them like the second dog would be impractical (the cons of wearing them like the second dog).