4.1 Introduction

The overarching goal of the EU is to have an internal market without barriers. In this regard obstacles to the free movement should be abolished. Through this abolition a free and efficient allocation of resources can be achieved.1 Moreover, jurisdictions should not give cross-border situations a less favourable treatment than comparable internal situations. EU law can be divided into primary and secondary EU law. The primary sources of EU law are the founding treaties: the Treaty on the Functioning of the European Union (TFEU) and the Treaty on European Union. Acts2 adopted by the EU institutions are the secondary sources of EU law. Secondary EU law is based on and derived from primary EU law, meaning that the acts require a legal basis in the founding treaties.

Already in 1964 the CJEU indicated that for the effective functioning of the internal market, national laws cannot take precedence over EU law.3 After all, if national laws take precedence this would mean that the scope of application of EU law would be entirely dependent on these laws. Additionally, it would be impossible for individuals and undertakings to effectuate their EU rights. Therefore, EU provisions should not only take precedence over national law, they should also have direct effect. This is the case if the provision is intended to confer rights on individuals and is sufficiently clear, precise and unconditional.4 The principle of direct effect enables individuals to immediately invoke EU law before courts.5 Thus, EU law does not only entail obligations for EU countries, but also rights for individuals.

EU law is, inter alia, important for cross-border income for groups of companies that established entities in different Member States. EU law only has a limited impact on the conclusion of tax treaties. Due to the lack of unification or harmonization measures to abolish double taxation at EU level,6 Member States have the power to set the criteria for the distribution of tax power with a view to preventing double taxation.7 In that regard, it is not unreasonable for Member States to use the criteria followed in the international tax practice, and in particular in the OECD MTC.8 However, as direct taxation falls within the competences of the Member States, that competence should be exercised in accordance with EU law.9 EU law thus does not influence the provisions on the allocation of taxing rights, but does have influence on the exercise of taxing rights.10

Despite the essentially limited influence of EU law on tax treaties, alternative approaches can be derived from EU law that can provide insights for the application of tax treaties for groups of companies. After all, the objectives of tax treaties are compatible with the efficiency objectives of the internal market, which aim to reduce double taxation as an obstacle to cross-border trade.11 Consequently, the goals of the EU and the OECD MTC can to a certain extent be seen as similar: both aim to reduce tax obstacles to cross-border services, trade and investment, without providing opportunities for tax avoidance.12 Therefore, this chapter revolves around the question: to what extent is the fact that an entity is not a standalone entity taken into account (i.e., some form of a group approach) in parts of EU law and would such an approach be recommendable from the perspective of the objectives of the OECD MTC? Basically, the question thus is whether such a group approach would contribute to preventing juridical and/or economic double taxation and/or tax avoidance.13

To answer this question, both the case law of the CJEU and the directives in the field of direct taxation are discussed. The CJEU has issued several judgments on the application of the fundamental freedoms regarding national provisions that affect groups of companies. These judgments are the central topic of par. 4.2. The various directives for direct taxation are discussed in par. 4.3.14 Par. 4.4 concludes this chapter and contains an interim conclusion.