Treaty Application for Companies in a Group (FM nr. 178) 2022/4.4:4.4 Conclusion

Treaty Application for Companies in a Group (FM nr. 178) 2022/4.4

4.4 Conclusion

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The main goal of this chapter was to determine whether a variant of a group approach applies in primary and/or secondary EU law and whether elements of such an approach would fit within the objectives of the OECD MTC. In this chapter the following issues have been identified in respect of groups of companies in a cross-border context:

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limited loss compensation possibilities for groups of companies can lead to economic double taxation;

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limited possibilities to enter into tax groups can lead to juridical and economic double taxation;

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an anti-abuse provision without a group approach can lead to juridical and economic double taxation;

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the grouping together of companies can lead to juridical and economic double taxation with respect to dividends;

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the grouping together of companies can lead to juridical double taxation with respect to interest and royalty payments;

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mergers, divisions, partial divisions, transfers of assets and exchanges of shares within groups of companies can lead to juridical and economic double taxation;

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the grouping together of companies can lead to economic double taxation or a variant of economic double taxation with respect to interest expense limitation rules, exit taxes, CFC measures and measures to counter hybrid mismatch arrangements;

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the grouping together of companies can provide tax avoidance opportunities with respect to:

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loss compensation;

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the possibility to enter into tax groups;

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a limited scope of anti-abuse provisions.

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dividend payments;

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interest and royalty payments;

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reorganizations;

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interest deductions;

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company transfers;

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controlled foreign companies; and

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hybrid mismatches.

In CJEU case law and EU directives more attention is paid to groups of companies than within the OECD MTC. A number of specific amendments could be made to the OECD MTC to take more account of group situations for tax treaty purposes. Eliminating the withholding tax on dividend distributions in certain group situations seems desirable to stimulate cross-border investments for groups of companies. Additionally, it could be considered to change the distributive rule or to introduce an exemption or credit at the level of the recipient with a view to eliminate double taxation. In group situations an exemption for withholding taxes on interest would also be an option. Apart from that, a reorganization clause might be a relevant addition to the OECD MTC. Moreover, rules on exit taxes and CFC rules could be included in the model.

However, the aforementioned options are only partial solutions. Basically, for all discussed elements both double taxation and tax avoidance opportunities can be the result in a group context. That is inherent to group situations and therefore not easy to solve in the current tax treaty framework. To thoroughly deal with these issues for groups of companies in a cross-border context, a comprehensive amendment is necessary. A full group approach gives a more accurate and legal form neutral image of economic reality. Emphasis is placed on the economic situation rather than the juridical situation.

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