Treaty Application for Companies in a Group (FM nr. 178) 2022/3.5.5:3.5.5 Overview

Treaty Application for Companies in a Group (FM nr. 178) 2022/3.5.5

3.5.5 Overview

Documentgegevens:

L.C. van Hulten, datum 06-07-2022

Datum: 06-07-2022
Auteur: L.C. van Hulten
JCDI: JCDI:ADS659377:1
Vakgebied(en): Omzetbelasting / Plaats van levering en dienst

The following table provides an overview of the various OECD MTC provisions discussed in this chapter. The table indicates for each subject of the Convention provision, or for the Convention provision as such, whether a variant of a group approach is applied. Then the consequences of the group approach (or the lack of it) are explained. For this purpose, the following terms and their meanings are used:

–: positive: contributes to achieving the OECD MTC objectives;
–: neutral: not negative for achieving the OECD MTC objectives; and
–: negative: negative for achieving the objectives of the OECD MTC.

Finally, the overview includes the points of attention unrelated to whether or not a group approach is used.

Provision	Subject	Form of a group approach?	Consequences of group approach or lack of group approach?	Other points of attention for the application of the model to groups of companies?
Art. 1, art. 3 and 4 OECD MTC	Treaty residence	Yes, according to the OECD, specifically with a view to preventing treaty shopping	Positive (aims to prevent tax avoidance)	Following place of establishment/procedural approach to full tax liability does not contribute to achieving OECD MTC objectives and can be exploited within a group of companies
	Tiebreaker	Yes, probably substantive	Positive (aims to prevent tax avoidance)
	Partnerships	No	Neutral
	Saving clause - Application CFC legislation	No	Negative (possible double taxation)

Art. 5 Permanent establishment	Art. 5, par. 4.1, OECD MTC (anti-fragmentation rule), art. 5, par. 6, OECD MTC (independent agent), art. 5, par. 3, OECD MTC (anti-fragmentation rule as included in the OECD Commentary)	Yes	Positive (aims to prevent tax avoidance), but probably not multilateral in scope
Art. 5 Permanent establishment	Art. 5, par. 7, OECD MTC	No	Positive (aims to avoid double taxation)

Art. 6 Income from immovable property	Convention provision	No	Neutral	Lack of subject-to-tax requirement does not help OECD MTC to realize its objectives and can be exploited within a group of companies

Art. 7 Business profits	Convention provision	In principle not (only indirectly, through application of art. 5 OECD MTC)	Negative (criticism of arm’s length principle)	Lack of subject-to-tax requirement does not help OECD MTC to realize its objectives and can be exploited within a group of companies
Art. 7 Business profits	Convention provision		Negative (criticism of arm’s length principle)

Art. 8 International shipping and air transport	Convention provision	No	Neutral	Lack of subject-to-tax requirement does not help OECD MTC to realize its objectives and can be exploited within a group of companies

Art. 9 Associated enterprises	Convention provision	No	Negative (criticism of arm’s length principle and lack of clarity about the concept of associated enterprise)
Art. 9 Associated enterprises	Convention provision	No

Art. 10 Dividends	Art. 10, par. 2, OECD MTC	Yes, if 25% of the shares are held	Positive (elimination of double taxation), but juridical double taxation not fully solved	No solution for economic double taxation in a group context
	Beneficial owner	No	Negative (possible double taxation)	Lack of subject-to-tax requirement does not help OECD MTC to realize its objectives and can be exploited within a group of companies
				Different treatment of dividends, interest and royalties encourages recharacterization of income within groups of companies

Art. 11 Interest	Art. 11, par. 1, OECD MTC	No	Neutral	Lack of subject-to-tax requirement does not help OECD MTC to realize its objectives and can be exploited within a group of companies
	Beneficial owner	No	Negative (possible double taxation)	Different treatment of dividends, interest and royalties encourages recharacterization of income within groups of companies
	Art. 11, par. 6, OECD MTC	Yes	Positive (aims to prevent tax avoidance)	Juridical double taxation not fully solved

Art. 12 Royalties	Art. 12, par. 1, OECD MTC	No	Neutral	Lack of subject-to-tax requirement does not help OECD MTC to realize its objectives and can be exploited within a group of companies
	Beneficial owner	No	Negative (possible double taxation)	Different treatment of dividends, interest and royalties encourages recharacterization of income within groups of companies
	Art. 12, par. 4, OECD MTC	Yes	Positive (aims to prevent tax avoidance)

Art. 13 Capital gains	Convention provision, except art. 13, par. 4, OECD MTC	No	Negative (settlement upon intra-group transfer)	Lack of subject-to-tax requirement does not help OECD MTC to realize its objectives and can be exploited within a group of companies
	Convention provision, except art. 13, par. 4, OECD MTC	No	Negative (settlement upon intra-group transfer)
	Art. 13, par. 4, OECD MTC	Yes	Positive (aims to prevent tax avoidance)	No solution for economic double taxation in a group context
	Art. 13, par. 4, OECD MTC	Yes	Positive (aims to prevent tax avoidance)	No solution for economic double taxation in a group context

Art. 16 Directors’ fees	Convention provision	No	Neutral	Lack of subject-to-tax requirement does not help OECD MTC to realize its objectives and can be exploited within a group of companies

Art. 21 Other income	Convention provision	No	Neutral	Lack of subject-to-tax requirement does not help OECD MTC to realize its objectives and can be exploited within a group of companies

Art. 23 A and 23 B Exemption method and credit method	Convention provision	No	Neutral	Lack of subject-to-tax requirement does not help OECD MTC to realize its objectives and can be exploited within a group of companies

Art. 24 Non-discrimination	Art. 24, par. 5, OECD MTC	No, national group regimes do not have to be expanded to international situations	Positive (aims to prevent tax avoidance) and negative (may lead to economic and juridical double taxation)

Art. 25 Mutual Agreement Procedure	Convention provision	No	Neutral

Art. 29 Entitlement to benefits	LOB provision	Yes	Positive (aims to prevent tax avoidance and double taxation)
	Provision in relation to permanent establishments	No	Neutral	No overarching solution for issue relating to triangular cases
	PPT	Yes	Positive (aims to prevent tax avoidance and double taxation)