5.4 Conclusion

Different variants of group approaches are applied in national tax law. First of all, group taxation regimes often provide for possibilities to compensate losses within a group and for deferral of the recognition of gains arising from asset transfers between group members. These two elements would fit within the objectives of the OECD MTC. However, as the group taxation regimes in principle only apply in a domestic context, they only contribute to a limited extent to legal form neutrality within the tax system.

The extended group approach that is taken for application of unitary taxation systems seems to contribute to legal form neutrality within the tax system. Intra-group transactions would be non-existent for tax purposes under such an economic approach. A global unitary business approach using formulary apportionment would eliminate double taxation as well as eliminate opportunities for tax avoidance. Therefore, it would contribute to the neutrality of the tax system. The approach would be in line with the objectives of the OECD MTC. Nevertheless, a non-global formulary apportionment system would likely lead to double taxation as well as provide tax avoidance opportunities. Moreover, in the design of the system the digitalisation of the economy should be taken into account.

All in all, it should be kept in mind that harmonization is key in eliminating double taxation and eliminating opportunities for tax avoidance. However, if the entire system would be harmonized under the arm’s length principle, there would also be no risk of double taxation or tax avoidance. Still, the arm’s length principle would not take into account that a group can be a single integrated enterprise.