Treaty Application for Companies in a Group
Einde inhoudsopgave
Treaty Application for Companies in a Group (FM nr. 178) 2022/6.3.8.7:6.3.8.7 Interim conclusion: double non-taxation in the case of tax avoidance
Treaty Application for Companies in a Group (FM nr. 178) 2022/6.3.8.7
6.3.8.7 Interim conclusion: double non-taxation in the case of tax avoidance
Documentgegevens:
L.C. van Hulten, datum 06-07-2022
- Datum
06-07-2022
- Auteur
L.C. van Hulten
- JCDI
JCDI:ADS659493:1
- Vakgebied(en)
Omzetbelasting / Plaats van levering en dienst
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The aforementioned can be summarized schematically as follows:
Highlights approach
Distinguishes between intended and unintended double non-taxation?
Other remarks
The credit mechanism
Taxes paid abroad are credited against the taxes due in the residence country
No distinction is made between intended and unintended double non-taxation
Does not give countries the possibility to choose between CIN and CEN
A subject-to-tax clause
Reclaim taxing rights if other state does not use taxing right
No distinction is made between intended and unintended double non-taxation
A rather ‘blunt instrument’
A switch-over clause
A country that generally applies the exemption method switches to the credit method in certain situations
Yes, could be drafted to solely apply to double non-taxation in abusive situations
Making the treaty rule the domestic rule
The tax treaty creates taxing rights
No distinction is made between intended and unintended double non-taxation
Intrudes fiscal sovereignty and could lead to conflicts with EU law
The PPT
General anti-abuse rule
Solely determines whether there is a treaty benefit
‘Last resort’
The OECD MTC has always provided flexibility when it comes to the method to eliminate double taxation. It is up to the Contracting States to choose the method that matches with their tax policy. From the discussion in this section it follows that it is not easy to solve double non-taxation in line with the objectives of the OECD MTC. As indicated, solely unintended double non-taxation leads to an issue from the perspective of the objectives of the model. Therefore, it is especially important that a potential solution contributes to making sure there is no double non-taxation in abusive situations. The only potential solution as discussed in this section that takes this element into account, is the switch-over clause. Even though it will probably be difficult to reach consensus on this topic, to better reflect the objectives of the OECD MTC it could be considered to require the inclusion of a switch-over clause in tax treaties if the exemption method is chosen. Even though this is definitely not a ‘perfect’ solution, it would contribute to eliminating unintended double non-taxation. The rule could be designed in line with art. 23 A, par. 4, OECD MTC. Indeed, such a provision is already included in the model, but the problem is that the article is often not followed in practice.