The Need to Avoid Double Economic Taxation Triggered by CFC Rules under Tax Treaties, and the Way to Achieve It

Abstract

The present article deals with the problem of double economic taxation triggered by CFC rules under tax treaties based the Model Tax Convention of the Organisation for Economic Co-operation and Development (OECD tax treaties). In that respect, the author first provides and analyses several arguments speaking in favour of the thesis that OECD tax treaties target double economic taxation triggered by an application of the CFC rules and the treaties therefore require Contracting States applying CFC rules to avoid said double economic taxation. Subsequently, the way in which the double economic taxation should be avoided by Contracting States is discussed. Finally, the author concludes that the need to avoid double economic taxation triggered by the application of CFC rules under OECD tax treaties is internationally recognized and respected and that the appropriate way to achieve it is to credit taxes paid by the CFC if this company does not constitute a PE of its participants, or, exempt its income from taxation if it constitutes a PE of its participants and the exemption method applies to its income.