Treaty Application for Companies in a Group

LC van Hulten

Research output: Types of ThesisDoctoral ThesisInternal

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Legal entities are usually not fully autonomous but are part of a larger economic unit. There is often a certain connection with other legal entities, for instance if a legal entity holds all or part of the shares in another legal entity. In principle, a legal entity is taxed separately from its shareholders. In OECD MTC based tax treaties, the starting point is also that each individual legal entity must be considered for the application of the treaty (separate entity approach). In treaty relations, deviation from the principle that entities in a group should be treated as separate entities is exceptional.
The legal approach taken for taxation purposes does not align with economic reality and does not seem to fit in today's internationally oriented world: it leads to double taxation and offers opportunities for tax avoidance. A multitude of ad hoc rules have been implemented in trying to solve this tax issue, for instance at the level of tax treaties. But still, the single legal entity is the starting point for these amendments and so-called solutions. This approach has created a complicated and fragmented system. This PhD addresses whether, from the perspective of 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. If this question is answered in the affirmative, the subsequent question is what this would mean for the treaty rules.
A group approach in the OECD MTC would be more in line with the objectives of the OECD MTC 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-group 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. Next to this overarching solution also a probably more realistic variant of a group approach (with ad hoc solutions to the identified problems) is discussed.
Original languageEnglish
Awarding Institution
  • Erasmus University Rotterdam
  • Kavelaars, Peter, Supervisor
  • de Wilde, Maarten, Supervisor
Award date20 Oct 2022
Place of PublicationRotterdam
Publication statusPublished - 20 Oct 2022

Research programs

  • SAI 2007-05 FA


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