6.2.1 Introduction

In this section it is argued that, assessed from the objectives of the OECD MTC, the separate entity approach should be abolished and a group approach should be introduced for both national law and for purposes of the OECD MTC. Under a full group approach for tax purposes, the corporate veil would be pierced, meaning that contracts and forms of corporate organizations and commercial arrangements would no longer be of relevance.1 Affiliation to the legal form of an entity allows taxpayers to manipulate the geographical source of income. A full group approach would mean there would be no double taxation in an intra-group context anymore. Additionally, it would mean that it would no longer be possible for corporate groups to avoid taxes via, e.g., inter-company loans, transfer agreements and intellectual property.2 Also, treaty shopping would no longer be possible. Therefore, cross-border activities would be stimulated and it would contribute to the neutrality of the tax system. Implementing such an overarching solution would require a multilateral tax treaty. Of course, such a fundamental change should be reflected both in national laws and at the level of tax treaties.3

In the next section the rationale behind a group approach – i.e., unitary taxation – is discussed from a national tax perspective (par. 6.2.2). Subsequently, the changes required to reflect unitary taxation in the OECD MTC are elaborated upon (par. 6.2.3). Then, some thoughts on the implementation steps (par. 6.2.4) as well as an evaluation of the proposal are described (par. 6.2.5). The last section contains concluding remarks (par. 6.2.6).