Einde inhoudsopgave
Treaty Application for Companies in a Group (FM nr. 178) 2022/3.3.3.4
3.3.3.4 Art. 8 OECD MTC: International shipping and air transport
L.C. van Hulten, datum 06-07-2022
- Datum
06-07-2022
- Auteur
L.C. van Hulten
- JCDI
JCDI:ADS659399:1
- Vakgebied(en)
Omzetbelasting / Plaats van levering en dienst
Voetnoten
Voetnoten
A special allocation rule applies for salaries of employees in the transport sector, i.e., art. 15, par. 3, OECD MTC.
Remarkably, road and rail transport do not fall within the scope of art. 8 OECD MTC. For that matter, there are tax treaties in which the scope of the article is extended to include road and rail transport.
Art. 3, par. 1, sub c, OECD MTC describes the concept of enterprise as: ‘the carrying on of any business’.
Commentary on art. 8 OECD MTC, par. 2.
See also art. 7, par. 4, OECD MTC.
See par. 3.3.2.2.
The exclusive allocation of taxing rights to the state of effective management applicable before 2017 could also lead to undesirable results. If the state of effective management does not tax the income under national legislation, double non-taxation is the result (E. Reimer et al., Klaus Vogel on Double Taxation Conventions, Alphen aan den Rijn: Kluwer Law International 2022, p. 628).
Art. 8 OECD MTC1 applies specifically to the profits of a company active in the field of shipping and air transport.2 There is a separate provision for such companies because these activities are usually spread over several states and the period of operation in each of the states is usually relatively short. Allocating profits to each of the states separately would create enormous complexity. The provision has no subject-to-tax requirement.
Until the 2017 update, art. 8 OECD MTC provided that only the state where the effective management of a shipping or air transport company is located may tax the profits. As of the 2017 update, the taxing rights for profits in scope of art. 8 OECD MTC are allocated to the state of residence of the enterprise.3 The background to this change is that the majority of countries prefer to allocate taxing rights to the state of residence, rather than to the state of effective management.4 From 2017 onwards, the state of residence of the enterprise is followed, irrespective of the effective management of the enterprise. Art. 8 OECD MTC therefore provides an exception to the general provisions of art. 7 OECD MTC on the allocation of taxing rights. The application of this provision ensures that shipping and aviation profits are always taxed in one state, regardless of whether the enterprise has a permanent establishment in the other state.5 With the amendment in the 2017 update, the OECD aims to be more in line with the actual practice of the tax treaties concluded by the OECD countries.
Art. 8 OECD MTC does not include an implicit or explicit group approach. After all, the concept of enterprise was not intended to provide for a group approach.6
The fact that art. 8 OECD MTC grants exclusive taxing rights to an enterprise’s state of residence may create possibilities for tax planning. If a state uses a formal national criterion for residence (e.g., registration), while all enterprise activities are carried on in the other state, exclusive taxing rights are allocated to the state of residence. On this point, art. 8 OECD MTC is not in line with the aim and purpose of the OECD MTC.7 Furthermore, the fact that the provision does not include a subject-to-tax requirement may lead to double non-taxation, depending on the national legislation of states.