7.3.3 Dividend, interest and royalties

In secondary EU law, a variant of a group approach is used to ensure there is not too much or not enough tax. The approach taken in the various directives to eliminate double taxation matches with the objectives of the OECD MTC. It could be considered to introduce PSD-like benefits in the OECD MTC. In this regard, the shareholding threshold in the dividend article could be lowered to contribute to eliminating juridical double taxation in more cases. Moreover, by eliminating withholding taxes on intra-group dividends, juridical double taxation could truly be avoided as the income would be allocated on an exclusive basis to one of the Contracting States.

Fully abolishing withholding taxes on interest and royalty payments, in line with the IRD solution, could provide tax avoidance opportunities. However, to counteract income recharacterization it could be considered to align the withholding tax rate for interest and royalty flows. The applicable withholding percentage should be determined in line with the policy goals of the countries involved.