2.2.1 Introduction

Within a group, there is a certain connection between legal entities. The connection leads to economies of scale, economies of scope as well as shared management, research and development and other costs.1 Therefore, the profits of the group as a whole are higher than the profits of the individual group members would have been had they been truly separate legal entities. This is the theory of the firm. In the next section this theory is elaborated upon (par. 2.2.2). As a second step, it is discussed whether there is a match between economic theory and taxation principles (par. 2.2.3). Moreover, the rationale behind a group approach for taxation is described (par. 2.2.4). The last section contains concluding remarks (par. 2.2.5).