1. CCCTB and Third Countries (No) Withholding Taxation Jan van de Streek Amsterdam Center for Tax Law 1

2. 2

3. Let’s start easy: single company 3

4. Conflicts between CCCTB and tax treaties with third states 4 Pre-existing DTC with third states are to be respected by MS Working Document (RD003):  ‘To the extent that [agreements between MS en third countries concluded before the Directive] may incorporate right and obligations which are not in line with the Directive, those agreements will not be affected.’ This conflict rule is consistent with doctrine  Analogously application of art. 351 TFEU  See for example A-G Kokott in Intertanko

5. Shared credit (art. 76) 5

6. Features shared credit 6 Credit against Apportioned Share Ordinary credit 1 st limitation = WHT levied 2 nd limitation = attributable corporation tax Per-country and per-type of income limitation Related deductible expenses are deemed at 2%  Unless the taxpayer proves otherwise No carry forward for future years for outstanding credits  Why?

7. Example (No DTC) 7

8. Behavioral effects in case of DTC (1)? 8

9. Behavioral effects in case of DTC (2)? 9

10. Invitation to Treaty Shopping 10

11. CCCTB accelerates treaty shopping 11 Inbound passive income: search for most favorable treaty MS - 3TH State Moving shareholding, receivable or IP is tax free –Move ownership = tax free intra-group transaction (consolidation) –Transfer of seat within group is also tax free –No effects on Formula (!) (Re)channeling income within group = tax free –No spreads etc. Countermeasures third states???

12. Shared revenue of EU-WHT (art. 77) 12

13. Text art. 77 CCCTB 13 Interest and royalties paid by a taxpayer outside the group may be subject to a withholding tax in the Member State of the taxpayer according to the applicable rules of national law and any applicable double tax convention  Does this make sense? The withholding tax shall be shared among the Member States according to the formula applicable in the tax year in which the tax is charged pursuant to Articles 86 to 102  Is this reasonable?

14. Remarks 14 First sentence art. 77 makes sure that WHT on outbound group I/R is not harmonized  Notwithstanding its sharing  Art. 3(2) TFEU is not triggered Sharing the revenue of WHT on outbound group I/R seems reasonable (≠ harmonization)  Preambule (18): because interest and royalties led to a previous deduction borne by all group companies The ‘balanced allocation’ is comparable with art. 15 OECD-model  Worker State is also allowed to tax salary within 183 days if the salary is ‘borne’ by a PE in the Worker State

15. But will there be anything to share? 15 Sharing creates no incentive for MS to levy a witholding tax  So-called ‘social loafing’ phenomenon Dividends, interest and royalties can flow untaxed to a third country as a result of the ban on intra-group WHT (art. 60)  The is no anti-avoidance measure in art. 60  The channeling itself is also tax free Channeling income out of Europe free from WHT has no consequences for Apportionment Formula

16. Rat race to the bottom Interest 16

17. Rat race to the bottom Dividends 17

18. Conclusions 18 CCCTB damages source entitlement third states Third states as source states, probably don’t like consolidated groups obtaining treaty benefits of one single group member Especially not if the benefits of most favorable treaty can easily be evoked via moving shareholding, debt-claim or IP tax free within a group CCCTB damages source entitlement MS MS as source states, probably don’t like consolidated groups channeling income free from WHT out of Europe Solution = Harmonizing WHT on outbound payments group + DTC on WHT between EU and third countries