Curbing Base Erosion via Withholding Taxes: The Case for a “Reverse Controlled Foreign Company” Approach

Guglielmo Maisto, Paolo Arginelli

Research output: Contribution to journalArticle


All developed countries tax, at least to some extent, income produced by non-resident persons within the territory over which they can exert sovereignty. Most countries still do so by way of withholding taxes, especially when the income is “passive”. Withholding at source is quite an unsophisticated, old-fashioned way of taxation, but it is nonetheless still one of the most prominent pivots of the international tax system. In a perfect “tax world” with full exchange of information between countries, with acceptable effective tax rates in all jurisdictions across the globe, and with balanced cross-border flows of income and investments among countries, it would likely be possible to start thinking about abolishing withholding taxes completely. Although source taxation has been a focal point of the whole OECD/G20 Base Erosion and Profit Shifting (BEPS) initiative, this Project, as well as its tax treaty and EU fallouts, focuses more on the protection of the corporate tax base of source countries by way of the denial of deductions, revised approaches to transfer pricing and the broadening of the concept of a permanent establishment (PE) than on the application of withholding taxes. Except for the introduction of the principal purpose test (PPT), with the many examples listed in the Action 6 Final Report and in the Commentary on Article 29(9) of the OECD Model (2017), and some other changes to the OECD Model (2017), the OECD/G20 BEPS initiative somehow neglected withholding taxation at source of passive income and the ways in which taxpayers may seek to circumvent such taxation. Given this background, this article is intended to demonstrate how withholding taxes can be used as an effective and efficient mechanism to curb base erosion and profit shifting, while not distorting the level playing field for competition between enterprises.
Original languageEnglish
Pages (from-to)578-581
Number of pages4
JournalBulletin for International Taxation
Publication statusPublished - 2018


  • Foreign Company
  • taxation


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