2.4.2.7 Interim conclusion: the group concept in the OECD MTC

The schemes discussed can be summarized schematically as follows:

The OECD MTC contains more explicit group definitions since the 2017 update. The newly added group definitions seem to indicate that the OECD opts for a broader scope of application of the substantive approach applied in art. 9 OECD MTC. However, the concept of closely related enterprise combines offering legal certainty and preventing abuse. In situations where at least 50% of the shares are held, a closely related enterprise is deemed to exist in any event. Yet the concept may also cover situations where a lower percentage of shares is held. A disadvantage of following the 50% requirement would seem to be that the share percentage does not by definition correspond to the actual control exercised over an entity. The substantive approach applied in both the closely related and associated enterprise concepts is in line with the objectives pursued in the relevant provision. In essence, both provisions aim to combat tax avoidance.

Art. 10 OECD MTC requires a minimum capital ownership of 25% in order to qualify for the provision that aims to prevent excessive taxation in group situations. As dividend payments are likely to be subject to double taxation, this seems a rather high minimum holding percentage.

According to art. 13, par. 4, OECD MTC, a property company exists if 50% of the value of shares directly or indirectly consists of immovable property. To determine whether this requirement is met, all direct or indirect equity interests must be taken into account. The group concept thus includes all equity interests held by the transferor. The provision is aimed at combatting tax avoidance. It is remarkable that a very broad group definition is used for this provision, without any minimum threshold. Counting a very small equity interest to determine whether a property company exists does not seem necessary to prevent tax avoidance.

For the application of the LOB provision, the concept of connected person is used as a group concept. A connected person exists if one entity directly or indirectly holds at least 50% of the votes and the value of the shares of the other entity. In addition, there may be a connection on the basis of the facts and circumstances. For the application of the LOB provision, connected persons are included in the assessment in order to determine whether the active business test is met. The provision uses an interpretation that is largely in line with the concept of closely related enterprise.