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Treaty Application for Companies in a Group (FM nr. 178) 2022/4.2.3.5
4.2.3.5 Anti-abuse provisions & the OECD MTC
L.C. van Hulten, datum 06-07-2022
- Datum
06-07-2022
- Auteur
L.C. van Hulten
- JCDI
JCDI:ADS659500:1
- Vakgebied(en)
Omzetbelasting / Plaats van levering en dienst
Voetnoten
Voetnoten
Please note that the Fred. Olsen case from the EFTA Court also seems to imply a group approach to determine whether an entity conducts a real and genuine economic activity: ‘Whether the entity in question conducts a real and genuine economic activity cannot be answered in the abstract. It depends on the actual terms of the entity’s statutes, such as, in the case at hand, the trust’s deed, and the actual activities of that entity and its management. If a specific assessment reveals, for example, that the trust is involved in the management of a group’s companies or other activities for a group, such as managing a pool of resources, and its actual incorporation reflected its actual activities, it has to be regarded as a real and genuine economic activity, which constitutes establishment. As the Commission stated in response to a question from the bench, it is not required that the economic activities take effect in the EEA State of establishment. It suffices that they take effect in the EEA.’ EFTA Court, 9 July 2014, Case E-3/13 and E-20/13, Fred. Olsen and Others and Petter Olsen and Others and The Norwegian State, represented by the Central Tax Office for Large Enterprises and the Directorate of Taxes, point 99.
In my view the preamble is not a separate anti-abuse provision. Apart from that, it could be argued that the guiding principle (Commentary on art. 1 OECD MTC, par. 61) is a separate anti-abuse provision. Because the PPT is – according to the Commentary – merely a confirmation of the principle, it is not described in this section. Moreover, the anti-abuse provisions that is specifically aimed at permanent establishments in third states (art. 29, par. 8, OECD MTC) is not separately discussed due to its specific nature.
Please note that the anti-abuse provisions are not limited to group situations. For example, for application of art. 11 and 12 OECD MTC no shareholding requirement is imposed.
For the sake of brevity, only dividends are referred to below.
Commentary on art. 10 OECD MTC, par. 12.5.
Commentary on art. 10 OECD MTC, par. 12.4.
Commentary on art. 10 OECD MTC, par. 12.3.
C. Hamra & J.J.A.M. Korving, ‘Beneficial Ownership Interpreted, To What Extent Are the OECD and the EU on the Same Wavelength?’, Intertax 2021, vol. 49, no. 3, par. 2.2.3.
Commentary on art. 10 OECD MTC, par. 12.1.
See also par. 3.3.3.6.
Art. 29, par. 1-7, OECD MTC.
E.g., a listing on a recognized stock exchange.
Satisfying the LOB provision does not change the fact that the person must also meet all other conditions set by the tax treaty in order to actually claim a treaty benefit (for example, a certain percentage of ownership).
See par. 3.3.5.4.
See par. 3.3.5.4.
Moreover, it follows from the OECD Commentary that the policy of the group may be important in determining whether a conduit arrangement is involved (Commentary on art. 29 OECD MTC, par. 187, example E).
To avoid any confusion: it is explicitly not my intention to make a group approach a prerequisite for the application of the beneficial ownership concept/PPT in the sense that the beneficial ownership concept/PPT can only be applicable in group situations.
See chapter 2.
The question arises whether the group approach with respect to anti-abuse provisions that, in my view, follows from the case law of the CJEU,1 – if it is not already in place – might form an interesting addition for the OECD MTC. Tax treaties that are based on the OECD MTC can contain various anti-abuse provisions: the beneficial owner concept, the LOB provision and the PPT.2 These anti-abuse provisions can all play a role in group situations.3
First of all, does the beneficial owner concept entail a group approach? Articles 10, 11 and 12 of the OECD MTC require that the recipient of the dividends, interest or royalties is the beneficial owner in order to claim treaty benefits.4 The application of the beneficial owner concept seeks to deal with tax avoidance.5 If the recipient is restricted in their ‘right to use and enjoy’ the dividend, because of contractual or legal obligations that require the recipient to pass on the payment received to another person, the recipient is not the beneficial owner.6 A conduit company used to claim treaty benefits is normally not considered a beneficial owner.7 There is no consensus on whether the beneficial ownership requirement entails a legal or an economic test (i.e., should a formal approach be taken or should the actual economic situation be taken into account).8 Under the – in my view preferable – more economic test, the beneficial ownership concept takes into account all the facts and circumstances of a situation, which could also be the group structure of an entity. This means the term beneficial owner is understood not in a narrow technical sense, but as having a meaning that enables the avoidance of double taxation and the prevention of tax evasion and avoidance.9 In this view, the beneficial ownership criterion can be said to entail a variant of a group approach similar to the approach taken in the CJEU case law.10
The LOB provision11 tests whether or not a person is eligible for treaty benefits12 based on certain characteristics of the person.13 In the LOB provision on specific elements a group approach is prescribed.14 However, the general group approach as follows from the CJEU case law does not match with the specific nature of the LOB provision.
The broad scope of the PPT seems to entail a group approach similar to the approach taken in the CJEU case law. The PPT includes a group approach with a view to addressing tax avoidance as both direct and indirectly obtained benefits fall within its scope. It could be questioned whether currently a group approach may be applied for PPT purposes in a positive manner for taxpayers, i.e., whether the substance of other group companies in the same country may be taken into account.15 Such an interpretation would probably result in the PPT having an effect in fewer situations. In my opinion, this fits in with the casuistic nature of the anti-abuse provision, in which all facts and circumstances must be considered.16 Additionally, it matches with the aim of the OECD MTC to prevent juridical double taxation without providing opportunities for tax avoidance.
All in all, in my view a similar group approachshould be used for the application of the beneficial ownership concept and the PPT in group situations as the approach applied in the CJEU case law – if this is not already the case.17 Applying a group approach in an anti-abuse provision on a treaty level aims to prevent juridical and economic double taxation and minimizes tax avoidance possibilities as a holistic approach is taken. The question arises which entities belong to the group for application of the beneficial ownership concept and the PPT. Even though it is in my view preferable to have a consistent group definition throughout the OECD MTC,18 taking all facts and circumstances into account does not really seem to match with such a consistent definition. For the group definition as such an open standard should be used, in which the actual situation can be taken into account. This should provide sufficient flexibility to combat tax avoidance.
Applying a group approach for application of the beneficial ownership concept and the PPT can be seen as a way to amend the outcomes that are caused by the separate entity approach. Under a group approach, in which a group of companies is considered to be the taxpayer, the tax avoidance opportunities which the anti-abuse provisions aim to combat would no longer exist. If there would be such a change in approach, an anti-abuse provision would not be required at all. This approach will be further elaborated upon in the following chapters.