1.7 Scope and limitations

Treaty application for companies in a group is a broad topic and involves all kinds of issues. Therefore, it is necessary to delineate the topic. The main limitations are mentioned here.

The starting point for this research is the legal nature of companies as separate legal entities.1 Only limited attention is paid to the legal reasoning underlying the existence of legal entities.

The objectives of the OECD MTC as stated by the OECD are assessed to determine whether the current treaty rules for group entities are in line with the object and purpose of tax treaties, or whether changes are required. The question could be asked whether these objectives truly contribute to the overall goal of the OECD, i.e., whether they ’foster prosperity, equality, opportunity and well-being for all.’2 This is taken as a given in this research.

The taxation of a group of companies raises issues at a national, a European and a tax treaty level. The focus in this research is on the tax treaty level. This research will not claim that there is one solution for the various issues that surround tax treaty application for companies in a group.3 Each country will have a different starting point and different objectives when it concerns the negotiation of their tax treaties. Additionally, the scope of this research does not include a proposal for a preferred profit allocation method. Therefore, the aim of this research is not to try and propose a new OECD MTC text with a ‘one size fits all’ approach. Instead, points of attention, advantages and disadvantages of various approaches will be discussed, assessed from the perspective of the objectives of the OECD MTC. As regards an attempt to draft a concrete text for a new OECD MTC, there is room for further research.

As taxing rights granted under a tax treaty can only be enforced if a country can tax the income or assets from a national perspective, this research also pays attention to the tax system that would be required at a national level. This implicitly assumes that the policy objectives of national governments are in line with the objectives as set by the OECD. In principle, countries will focus primarily on the effects for their own country, whereas the OECD objectives relate to a more global level. Therefore, the policy objectives of national governments do not necessarily have to be in line with the objectives as set by the OECD. However, as it is not possible to determine the policy objectives of each individual country (and a lot of countries will not even have clear policy objectives), this approach is chosen.

For purposes of this research, a selection has been made from the tax and legal sources that deal with national tax law and international tax treaty law governing the taxation of companies in a group. It is not possible to include all available materials in this research, given time constraints and size limitations. Still, a very diverse range of sources has been used. However, the selected sources may be influenced by personal bias.

The research focuses exclusively on corporate income taxes and withholding taxes. As a result, the OECD MTC provisions relating to natural persons4 will not be discussed. Art. 17 OECD MTC applies to both natural persons and legal entities. It is not included either since its application will, as a rule, not be relevant in the context of a group of companies.

Furthermore, the analysis merely includes the outlines of the OECD MTC provision which shows that related entities should act as if they were independent parties (art. 9 OECD MTC). An extensive discussion of the arm's length principle and the associated transfer pricing guidelines that explain this provision is not part of this research.

The chapter on taxation of capital (Chapter IV OECD MTC) is not discussed, as this research focuses on corporate income taxes and withholding taxes. The chapter on the entry into force and termination of tax treaties (Chapter VII OECD MTC) will not be discussed either, because of its procedural nature.

The research is conducted based on the OECD MTC 2017 for tax treaties. Bilateral tax treaties will only be discussed indirectly. On top of the OECD MTC, there is also the United Nations Model Double Taxation Convention: a model tax convention meant for tax treaties concluded between developed and developing countries. Compared to the OECD MTC, the model convention of the United Nations is more focused on source country taxation with a view to promoting investments in developing countries.5 Due to the limited use of this model tax convention, the difference in objectives of both models, and by contrast the many similarities between the United Nations Model Double Taxation Convention and the OECD MTC, no analysis has been made of the desirability of a group approach for the United Nations Model Double Taxation Convention. This is one of the possible areas for further research.

Tax evasion as such will in principle not be referred to in the remainder of this research, as tax evasion is a form of tax fraud.6

National provisions, which take into account that entities can be group entities, are in principle not included in the scope of this research. Furthermore, the main focus of the research is on groups of companies and not on group taxation regimes as such. However, group taxation regimes and their relation to tax treaties will be discussed insofar as relevant for the research.

Triangular cases will only be touched upon briefly, as a thorough discussion would require a separate study.7 Therefore, it is beyond the scope of this research to extensively discuss triangular cases and the possible solutions that exist.

Finally, this research only indirectly discusses compartmentalisation in the field of tax treaties. In this context, it is taken as a starting point that the application of treaties does not require any compartmentalisation.8

The manuscript was closed on 4 May 2022.