Einde inhoudsopgave
Treaty Application for Companies in a Group (FM nr. 178) 2022/1.2
1.2 Problem statement
L.C. van Hulten, datum 06-07-2022
- Datum
06-07-2022
- Auteur
L.C. van Hulten
- JCDI
JCDI:ADS657671:1
- Vakgebied(en)
Europees belastingrecht / Richtlijnen EU
Vennootschapsbelasting / Fiscale eenheid
Internationaal belastingrecht / Belastingverdragen
Vennootschapsbelasting / Belastingplichtige
Voetnoten
Voetnoten
I.e., tax consequences for the entity depend on other taxable entities (International Fiscal Association, Cahiers de Droit Fiscal International – Group approach and separate entity approach in domestic and international tax law (vol. 106a), Rotterdam: International Fiscal Association (IFA) 2022, p. 20).
States are free to choose the manner in which treaty obligations are adhered to in their domestic law. There are two main possibilities: monism (the treaty has direct legal effect) or dualism (the treaty should be implemented in domestic legislation). See in this regard, e.g., S. Sachdeva, 'Tax Treaty Overrides: A Comparative Study of the Monist and the Dualist Approaches', Intertax 2013, vol. 41, no. 1, par. 1.
Tax treaties restrict the application of domestic law. A country can thus apply its domestic law, unless it is prohibited by a tax treaty to do so. For some thoughts on whether it could be the other way around see P. Kavelaars, ‘Bouwstenen en het internationale fiscale recht’, Tijdschrift voor Fiscaal Ondernemingsrecht 2021/173.6, par. 2.1. See also par. 6.3.8.5.
The issues outlined above raise the question of whether, in view of the objectives of the OECD MTC, the OECD MTC should have more regard to the fact that companies can be part of a group. Therefore, the problem definition of this research is:
From the perspective of the aim and purpose of the OECD MTC, should the separate entity approach for the application of treaty rules in the OECD MTC be replaced by a group approach? If so, what would this mean for the treaty rules?
The central question of this research is, therefore, whether a change to the OECD MTC is desirable, from the perspective of the aim and purpose of the OECD MTC, and if so, what this would mean for the treaty rules.
The term separate entity approach refers to the legal approach that is the current foundation of the OECD MTC, i.e., to purely regard legal entities as separate entities for the purposes of tax treaties. The term group approach refers to a more substantive approach, in which facts and circumstances within the group to which a taxpayer belongs can affect the application of the treaty rules in the OECD MTC.1 A group approach abstracts from the legal form of a corporate structure and follows the economic situation. As a result, tax treaties would reflect the economic reality – i.e., the economic relations – of multinational groups as closely as possible.
If the current treaty rules of the OECD MTC for entities that are part of a group turn out to be in line with the aim and purpose of the OECD MTC, the relevance of this research is that it shows that the current time frame does not require any changes. However, should changing the OECD MTC appear to be desirable, recommendations will be made to shape such a change. To do so, it should first of all be determined how the group concept should be defined. Furthermore, in view of the objectives of the OECD MTC it is important to examine which group problems should fall within the scope of tax treaties.
Changed treaty rules in the OECD MTC do not automatically imply that the taxing rights can actually be effectuated on a national level.2 After all, a tax treaty does not create taxing rights, it merely allocates them.3 Thus, next to the recommendations provided to shape the OECD MTC, attention will also be paid to the principles on which the national taxing rights of countries should be based.