Proposal for a Global Taxation System
– DAGTVA truth table –
DAGTVA® – Distribution of MNE profits
|No.||Problems exposed, requests, constraints and subjects||Origin||Pg||Li||Doc|
|98||Ap – Mt C – dispute settlement measures.||Pillar 1||16||15||RBMcr|
Quote : Appendix – Detailed proposal on profit allocation
Amount C – Generalities (RBAcg)
64. Taxpayers and tax administrations would retain the ability to argue that the marketing and distribution activities taking place in the market jurisdiction (RBMco) go beyond the baseline level of functionality and therefore warrant a profit in excess of the fixed return contemplated under Amount B, or that the MNE group or company perform other business activities in the jurisdiction unrelated to marketing and distribution. In either case an additional profit – Amount C – would be due where this is supported by the application of the arm’s length principle, though this would require robust measures to resolve disputes (RBMcr) and prevent double taxation (RBPpi – RBNdi – RBQdd – RBQme – RBQrd – RBAbr – RBMcd). In this context (as well as in relation to any element of the proposal where a tax dispute arises in the market jurisdiction), it would be essential to consider existing and possible new approaches to dispute prevention and resolution, including mandatory and effective dispute prevention and resolution mechanisms to ensure the elimination of protracted disputes and double taxation (RBMcm – RBMcp – RBMcr – RBPpi).
As specified in the RBMco page, an additional benefit (for the seller taxation authorities) will not be allocated for the following reasons: “With transactional taxation and the DAGTVA transfer pricing calculation, direct taxation is applied proportionately to the seller in the production State. Profits are therefore generated up to the value of the taxed transactions, therefore a profit greater than the fixed amount for amount B, with DAGTVA this solution is not envisaged. Otherwise, it would fall within the scope of double taxation for the seller. »
Regarding solid dispute settlement measures, the RBMcm section stipulates :
« Following the next RBMcs section which deals with this subject but on the possible attribution of residual profits and which provides other answers, you will see that the DAGTVA calculation of transfer prices is so precise that it prevents any different linked to elements of the proposal as explained in the section devoted to the « Amount A » option .
Open the slide show in reference:
- Authorization to continue the transaction (slide 14), the exporting company must normally be registered(*) with its tax authorities so that they give the export authorization in compliance with the agreement of the OECD article 7,
- When this authorization is given, a copy for the first information is sent to the tax authorities of the market State in order they analyze the transaction put in reserve for a next treatment(1).
- These should expect a purchase declaration (in B²B) which will occur on slide 15,
- Declaration of equality of controlled declarations in slide 16,
- Automatic exchange of BEPS information between the two States and production of export / import bar codes in slide 22,
(*) – But it is possible the sale is authorized by the buyer’s State in special circumstances where the seller would not have a physical presence. The main thing for the buyer’s State is to be informed the existence of the transaction which will allow its to receive the sale taxes as specified below by the production of import bar codes in slide 22,
(1) – In a B²C transaction, it is this process which makes it possible to validate the bar codes of the import documents which will authorize this importation but above all it is this process which allows the market state to know of the transaction and import authorizations do not come from fraud. There must be correspondence in the references of the tax statements in slide 21. If the transaction takes place from a tax haven (in the declarative tax system slideshow above), this State can no longer escape the declaration procedure, it is up to it to tax the sale or not.
But if for various reasons the tax return is not made and the tax not locally levied, the market State will want its consumer’s sale taxes to be returned to it and the production tax haven will then have to pay these taxes on its own funds to comply the law!
We can see above that the two tax authorities are in constant communication when declaring a transfer price and that DAGTVA clearly sets the rules of the tax game. In case of drift of ‘non-cooperative’ States, they would be ‘punished’ instantly as explained in this article devoted to a new international regulation by taxation, but also one of the two taxation authorities could decide to stop the transaction at level of its declaration, if the information transmitted does not fit into a shared tax ethics defined in the scope of the arm’s length principle.
This regulation with DAGTVA would therefore be legally binding by default. It could range from the sequestration of sale taxes to be returned in the market state, to the prohibition on trading one way or the other. Such decisions could be taken concerning the world taxation system, implying in fact a Global Single Market and applied by directives, under cover of international bodies as it is explain in the article as exemple.