6.2.5.4 Practicability

Introducing the unitary business concept in international tax law could lead to some practicability issues. It should be recognized that fully adhering to economic reality does not only have advantages. Embracing an economic approach will mean reducing legal certainty for taxpayers. There can, e.g., be discussions about whether or not an entity is part of a unitary business. The suggested group concept is an open norm, with a view to minimize tax avoidance possibilities. The downside of such an open norm is that the concept is less practicable, as there is no clear definition for tax administrations and taxpayers, with adequate control possibilities for tax administrations.

Additionally, it is often claimed that unitary taxation would provide difficulties on an administrative level. In addition, the application of a unitary business approach will require extensive information from tax administrations worldwide. Entities would have to provide information on a global basis. However, the current system with separate accounting also requires a considerable amount of international cooperation and information to work properly.1

Of course, a full implementation of the unitary business concept would create transitional problems. The administrative burden is expected to be higher during the transitional period. In addition, new legislation generally means that there will be uncertainties about its scope and application, resulting in legal uncertainty.

Moreover, as the rules specifically for the unitary business would be added to the OECD MTC, this means the model would become more complicated.2 The new rules would largely exist alongside the already existing tax treaty framework. However, as the intra-group transactions would no longer be visible from a tax perspective, this would lead to fewer transactions of which the tax implications would need to be assessed.