Abstract This study has two objectives. First, the content and scope of the prohibition of extraterritorial taxation under Article 10 paragraph 5 of the 2017 Organisation for Economic Co-operation and Development Model Tax Convention (OECD MTC) are examined. It deals with dual resident corporations as distributing companies. The prohibition of extraterritorial taxation of dividends is included in all double taxation conventions (DTC). However, the exact conditions of application and the interpretation of the prohibition of extraterritorial taxation are disputed in research and literature and the regulation has only been examined cursorily to date. Second, the prohibition of extraterritorial taxation under treaty law is brought into the context of bilateral and unilateral anti-treaty shopping regulations for the first time. Here, it can be shown that, due to their specific structure, anti-treaty shopping rules generally do not apply to dividend payments from dual resident companies that fall under the prohibition of extraterritorial taxation under treaty law, according to Article 10 paragraph 5 of the 2017 OECD MTC. This leads to the tax planning conclusion that dual resident companies can generally be used to optimize withholding taxes on dividends. This is an important finding, as the strategy of interposing holding companies to avoid or reduce withholding tax on dividends has now become largely ineffective due to the introduction of the Principal Purpose Test (PPT) in double tax conventions (Article 29 paragraph 9 of the 2017 OECD MTC) and unilateral anti-treaty shopping rules. From a tax policy perspective, this article examines options for limiting withholding tax avoidance by dual resident companies.
Thomas Kollruss (Fri,) studied this question.