Limitation of Holding Structures for Intra-EU Dividends: Limitation of Holding Structures for Intra-EU Dividends: A Blow to Tax Avoidance?

Susi Barentzen, Arjan Lejour, Maarten van 't Riet

Research output: Working paperDiscussion paperOther research output

Abstract

This article analyses the recent rulings from the European Court of Justice in two Danish cases and examines their possible impact on international tax avoidance. These rulings regard limitations of tax benefits related to cross-border dividends and interest payments resulting from the interposition of holding companies in the EU. We conclude that from a legal perspective, the rulings demonstrate the alignment of international tax policies to combat tax avoidance between the EU and the OECD. This alignment is historical in international tax law as it encompasses a record-high number of states and because it introduces a minimum standard of tools to combat tax treaty abuse directly into national state legislation. This could be the end for certain tax-motivated structures of international companies. From a quantitative perspective, the conclusion is that the rulings limit the potential for Multinational Enterprises to lower their tax burden considerably. The worldwide average potential gain from treaty shopping is reduced by 1.1 percentage points from 5.6% to 4.5% when the EU member states cannot be used on treaty shopping routes. With more countries, and treaties, involved, the combat against tax avoidance is more effective. However, the fact that some countries have a standard withholding tax rate of zero percent hampers the combat. If a prohibitive penalty is applied on indirect routes to all partner countries, the policy is much more effective. The gains from treaty shopping all but disappear in such a setting.
Original languageEnglish
Place of PublicationThe Hague
PublisherCPB Netherlands Bureau for Economic Policy Analysis
Number of pages52
Publication statusPublished - 19 Dec 2019

Publication series

NameCPB Discussion Paper
Volume406

Fingerprint

taxes
treaty
EU
withholding tax
holding
tax law
tax burden
tax policy
European Court of Justice
national state
EU member state
OECD
international law
penalty
abuse
legislation

Keywords

  • Tax avoidance
  • network analysis
  • treaty shopping
  • withholding taxes

Cite this

Barentzen, S., Lejour, A., & van 't Riet, M. (2019). Limitation of Holding Structures for Intra-EU Dividends: Limitation of Holding Structures for Intra-EU Dividends: A Blow to Tax Avoidance? (CPB Discussion Paper; Vol. 406). The Hague: CPB Netherlands Bureau for Economic Policy Analysis.
Barentzen, Susi ; Lejour, Arjan ; van 't Riet, Maarten. / Limitation of Holding Structures for Intra-EU Dividends: Limitation of Holding Structures for Intra-EU Dividends : A Blow to Tax Avoidance?. The Hague : CPB Netherlands Bureau for Economic Policy Analysis, 2019. (CPB Discussion Paper).
@techreport{aec0173d036a4f468c1aab3276cb9813,
title = "Limitation of Holding Structures for Intra-EU Dividends: Limitation of Holding Structures for Intra-EU Dividends: A Blow to Tax Avoidance?",
abstract = "This article analyses the recent rulings from the European Court of Justice in two Danish cases and examines their possible impact on international tax avoidance. These rulings regard limitations of tax benefits related to cross-border dividends and interest payments resulting from the interposition of holding companies in the EU. We conclude that from a legal perspective, the rulings demonstrate the alignment of international tax policies to combat tax avoidance between the EU and the OECD. This alignment is historical in international tax law as it encompasses a record-high number of states and because it introduces a minimum standard of tools to combat tax treaty abuse directly into national state legislation. This could be the end for certain tax-motivated structures of international companies. From a quantitative perspective, the conclusion is that the rulings limit the potential for Multinational Enterprises to lower their tax burden considerably. The worldwide average potential gain from treaty shopping is reduced by 1.1 percentage points from 5.6{\%} to 4.5{\%} when the EU member states cannot be used on treaty shopping routes. With more countries, and treaties, involved, the combat against tax avoidance is more effective. However, the fact that some countries have a standard withholding tax rate of zero percent hampers the combat. If a prohibitive penalty is applied on indirect routes to all partner countries, the policy is much more effective. The gains from treaty shopping all but disappear in such a setting.",
keywords = "Tax avoidance, network analysis, treaty shopping, withholding taxes",
author = "Susi Barentzen and Arjan Lejour and {van 't Riet}, Maarten",
year = "2019",
month = "12",
day = "19",
language = "English",
series = "CPB Discussion Paper",
publisher = "CPB Netherlands Bureau for Economic Policy Analysis",
type = "WorkingPaper",
institution = "CPB Netherlands Bureau for Economic Policy Analysis",

}

Barentzen, S, Lejour, A & van 't Riet, M 2019 'Limitation of Holding Structures for Intra-EU Dividends: Limitation of Holding Structures for Intra-EU Dividends: A Blow to Tax Avoidance?' CPB Discussion Paper, vol. 406, CPB Netherlands Bureau for Economic Policy Analysis, The Hague.

Limitation of Holding Structures for Intra-EU Dividends: Limitation of Holding Structures for Intra-EU Dividends : A Blow to Tax Avoidance? / Barentzen, Susi; Lejour, Arjan; van 't Riet, Maarten.

The Hague : CPB Netherlands Bureau for Economic Policy Analysis, 2019. (CPB Discussion Paper; Vol. 406).

Research output: Working paperDiscussion paperOther research output

TY - UNPB

T1 - Limitation of Holding Structures for Intra-EU Dividends: Limitation of Holding Structures for Intra-EU Dividends

T2 - A Blow to Tax Avoidance?

AU - Barentzen, Susi

AU - Lejour, Arjan

AU - van 't Riet, Maarten

PY - 2019/12/19

Y1 - 2019/12/19

N2 - This article analyses the recent rulings from the European Court of Justice in two Danish cases and examines their possible impact on international tax avoidance. These rulings regard limitations of tax benefits related to cross-border dividends and interest payments resulting from the interposition of holding companies in the EU. We conclude that from a legal perspective, the rulings demonstrate the alignment of international tax policies to combat tax avoidance between the EU and the OECD. This alignment is historical in international tax law as it encompasses a record-high number of states and because it introduces a minimum standard of tools to combat tax treaty abuse directly into national state legislation. This could be the end for certain tax-motivated structures of international companies. From a quantitative perspective, the conclusion is that the rulings limit the potential for Multinational Enterprises to lower their tax burden considerably. The worldwide average potential gain from treaty shopping is reduced by 1.1 percentage points from 5.6% to 4.5% when the EU member states cannot be used on treaty shopping routes. With more countries, and treaties, involved, the combat against tax avoidance is more effective. However, the fact that some countries have a standard withholding tax rate of zero percent hampers the combat. If a prohibitive penalty is applied on indirect routes to all partner countries, the policy is much more effective. The gains from treaty shopping all but disappear in such a setting.

AB - This article analyses the recent rulings from the European Court of Justice in two Danish cases and examines their possible impact on international tax avoidance. These rulings regard limitations of tax benefits related to cross-border dividends and interest payments resulting from the interposition of holding companies in the EU. We conclude that from a legal perspective, the rulings demonstrate the alignment of international tax policies to combat tax avoidance between the EU and the OECD. This alignment is historical in international tax law as it encompasses a record-high number of states and because it introduces a minimum standard of tools to combat tax treaty abuse directly into national state legislation. This could be the end for certain tax-motivated structures of international companies. From a quantitative perspective, the conclusion is that the rulings limit the potential for Multinational Enterprises to lower their tax burden considerably. The worldwide average potential gain from treaty shopping is reduced by 1.1 percentage points from 5.6% to 4.5% when the EU member states cannot be used on treaty shopping routes. With more countries, and treaties, involved, the combat against tax avoidance is more effective. However, the fact that some countries have a standard withholding tax rate of zero percent hampers the combat. If a prohibitive penalty is applied on indirect routes to all partner countries, the policy is much more effective. The gains from treaty shopping all but disappear in such a setting.

KW - Tax avoidance

KW - network analysis

KW - treaty shopping

KW - withholding taxes

M3 - Discussion paper

T3 - CPB Discussion Paper

BT - Limitation of Holding Structures for Intra-EU Dividends: Limitation of Holding Structures for Intra-EU Dividends

PB - CPB Netherlands Bureau for Economic Policy Analysis

CY - The Hague

ER -

Barentzen S, Lejour A, van 't Riet M. Limitation of Holding Structures for Intra-EU Dividends: Limitation of Holding Structures for Intra-EU Dividends: A Blow to Tax Avoidance? The Hague: CPB Netherlands Bureau for Economic Policy Analysis. 2019 Dec 19. (CPB Discussion Paper).