Does the LOB clause in BEPS Action 6 violate the principle of MFN treatment in EU law?
Abstract: OECD delivered on October 5th 2015 the BEPS final package consisting of 15 actions intending to address the issues of base erosion and profit shifting. The aim of Action 6 is to prevent treaty abuse, in particular treaty shopping. To achieve this goal, a specific anti- abuse rule, a Limitation- on- Benefit (LOB) rule, will be included in the OECD Model. The LOB rule contains objective tests that the taxpayer in question must satisfy in order to be granted benefits under a tax treaty. Hence, it does not, in general, refer to the intention of the taxpayer. The granting of such benefits has been based on residency of the party claiming the benefits, which, as a consequence, has created opportunities for tax treaty abuse. Hence, the LOB rule limits the application of Article 1 of the OECD Model Convention, according to which the Convention applies to a person resident of a contracting state. The BEPS project will be implemented in the tax treaties concluded between different states. However, as it constitutes soft law, EU law still prevails. Consequently, issues may arise as EU law and the BEPS proposal constitute different sources of law and may not always be compatible as they serve somewhat different purposes. As BEPS may have restrictive effects on the freedom to move in order to prevent treaty abuse, the EU aims at ensuring an internal market with free movement. The Most- Favoured- Nation (MFN) treatment constitutes a cornerstone in the WTO law, which aims to provide undistorted import and export between different markets. It has for a long time been disputed whether EU law also contains a principle of MFN treatment through the application of Article 18 of the TFEU in combination with the fundamental freedoms. The MFN treatment derives from the concept of horizontal discrimination, which refers to the situation in which two non resident taxpayers, resident in different Member States, are objectively comparable and subject to unequal treatment. This question has been disputable since in particular vertical discrimination has been prohibited under Article 18 of the TFEU. The issue whether horizontal discrimination should be prohibited within the EU has been dealt with by the case law of the CJEU. The core question has been whether two non- residents are in an objectively comparable situation. Hence, in this thesis, case law of the CJEU dealing with the existence of an MFN treatment within the EU is being analysed. The conclusion is that a prohibition against horizontal discrimination within the EU does exist. The following question to be dealt with concerns the correlation between the MFN treatment and the LOB rule proposed in the Action 6. To this end, the MFN treatment should not be applied as a remedy of an LOB rule that creates discriminatory effects, although acceptance of the MFN treatment and the refusal of the LOB clause in a specific situation lead to the same result.
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