7.4 Final remarks

This research reviewed the current treaty rules for groups of companies as contained in the OECD MTC against the two objectives of the model as set by the OECD (to avoid double taxation in order to encourage cross-border activities, without creating opportunities for non-taxation or reduced taxation through tax avoidance), in light of the overarching neutrality principle. Additionally, any newly proposed rules were assessed against this framework.

A group approach in the OECD MTC would be more in line with its objectives and would contribute to the neutrality of the tax system. Therefore, the separate entity approach should be abolished. The group as a whole should be taxed under national law and should subsequently be seen as a treaty resident. Most of the OECD MTC articles would no longer be relevant for intra-unitary business activities. Additionally, a proper method to allocate profits should be established. This would require a multilateral approach. A group approach at the level of tax treaties as such will not solve the issues with respect to the tax treatment of groups of companies. Any proposed changes should be reflected in national law.

All in all, to contribute to the aim and purpose of the OECD MTC, the separate entity approach for the application of treaty rules in the OECD MTC should be replaced by a group approach. However, this cannot be done easily. It would require a fundamental change in the international tax environment. Instead of the legal entity, the economic entity would be the leading concept. This would mean the system would be in line with economic reality. It indeed means a comprehensive change in mindset. It is time to stop with implementing ‘solutions’ for the flaws in the international tax system. Instead, it is time to take a group approach.