Non-Discrimination in European and Tax Treaty Law

I. S. 534Introduction

As a result of the ongoing BEPS discussion, some countries have introduced rules according to which the deduction of payments is denied if the payments are not “sufficiently” taxed at the level of the foreign payee (hereinafter referred to as low-taxed payments). In many cases, these rules only apply if the payor and the payee are affiliated companies. From the perspective of Article 24(5) OECD Model, this raises the question whether domestic tax rules establish discrimination. In order to answer this question, it has to be determined what the real reason for the different treatment is: low taxation or foreign ownership? Would it be sufficient to include low-taxed domestic affiliated companies within the scope of the rules in order to escape discriminatory treatment under Article 24(5) OECD Model? Would it matter whether or how many such low-taxed domestic affiliated companies may be actually found? The aim of this contribution is to offer answers to these questions and other closely related issues. The contribution focuses on the issue raised from the treaty law perspective, but the relevant European law topics will also be mentioned.

II. Legal Developments at an Int...