5.3.4.4 The CCCTB & tax treaties

The main question for this research is whether the separate entity approach for the application of treaty rules in the OECD MTC should be replaced by a group approach. The CCCTB is based on a group approach. Therefore, the question arises how the CCCTB reconciles with tax treaties and whether any lessons can be learned from this.

The 2011 CCCTB proposal explicitly stipulated that the proposed provisions would override tax treaties between Member States.1 A similar provision is not included in the current CCCTB proposal. Due to the supremacy of EU law, it seems likely that the CCCTB would prevail over double tax treaties with EU Member States in the case of conflicts.2

Tax treaties of Member States with third countries would continue to apply under the CCCTB. The question arises whether the concurrence between the CCCTB and those tax treaties leads to issues.3 Transactions between an EU country and a third country should be treated by the respective Member State in line with the applicable tax treaty. So the transfer pricing rules are still needed for these situations.4 The position could be taken that art. 351 TFEU is relevant in this regard. This article serves as an exception to the principle of supremacy of EU law. It allows Member States to continue to apply certain existing international agreements, even though they contradict the provisions of the EU founding treaties.5 According to the EC the legal status of double tax conventions with third countries is indeed in line with the legal status of international agreements under EU law. Still, the EC has tried to avoid conflicts between the CCTB/CCCTB and tax treaties as much as possible.6 For example, no common definition of a permanent establishment located in a third country is provided, so this element can be covered by bilateral tax treaties and national law.7 Additionally, it is determined that a tax credit for the tax liability in a third country may exceed the final corporate tax liability of a taxpayer, if this follows from a tax treaty concluded between a Member State and a third party.8 Moreover, the proposed switch-over clause (which denies application of the participation exemption if shares are held in a third country entity that is low taxed) does not apply if this is prevented by application of an applicable tax convention.9 With regard to this last mentioned example it should be noted that this is a rather surprising element, as the elimination of economic double taxation is normally not within the scope of tax treaties.

The proposed CCCTB does not seem to infringe non-discrimination clauses that are included in tax treaties with third countries, as there is no differentiation between arm’s length at the water’s edge and the allocation within the EU is not influenced by the nationality of the taxpayer. Additionally, permanent establishments are treated the same as corporations.10