EU report: reconstructing the treaty network

European Union law overlaps and interacts with both the OECD’s Base Erosion and Profit Shifting project (BEPS) and its implementation and the Member States’ tax treaties between them and with third countries, and there is also an area where all three fields meet. This inter-section of EU law, BEPS and Member States’ (mostly) bilateral tax treaties is the subject of this report. First, it should be noted that the Union’s competence under Article 115 TFEU not only covers purely internal situations, but the Union can also use its internal competence to specify the treatment of non-EU investors or third-country investments, and it has done so, e.g., in the Anti-Tax Avoidance Directive (ATAD); this has potential impact also on tax treaties between the Member States and with third countries and is examined in light of the supremacy of EU law and Article 351 TFEU. Second, the European Commission (EC) has issued various recommendations with regard to post-BEPS tax treaties of the Member States, which deal, inter alia, with the inclusion of a subject-to-tax clause in tax treaties, the definition of “perma-nent establishments” to prevent their artificial avoidance (Article 5 OECD MC) and the use of an EU-compatible Principal Purposes Test (PPT). Third, the OECD BEPS project has estab-lished a (political) minimum standard regarding measures against treaty shopping (Article 7 MLI and Article 29 OECD MC), and the Limitation on Benefits (LoB) in particular clause raises issues with regard to its compatibility with the EU fundamental freedoms. Fourth, and while the OECD BEPS project has not established a minimum standard with regard to mandatory bind-ing arbitration, the 2017 Tax Dispute Resolution Directive (TDRD) has established a mecha-nism for binding arbitration with regard to tax “disputes”. Fifth, the OECD BEPS project has addressed situations of treaty-based non-taxation, which might also raise state aid questions under Article 107 TFEU in cases where the misapplication of a tax treaty leads to “white in-come”.