Proposal for a Global Taxation System
– DAGTVA explanatory documents on the calculation of transfer prices –
– Basic situation of an ideal transaction –
– Situation where a production State ‘A’ with standard tax rates applies a WSTAX at 4% on a transfer price to State ‘B’ which has a TAX/VAT and CIT rate at 8% –
We first studied the situation of an ‘idealized’ transfer price then presented the situation of a transfer price in a market State which applied a TAX/VAT and CIT rate at 8%.
The reverse situation where it is the State of production which applied a TAX/VAT and CIT rate at 8% in order to see the consequences on the fiscal results for the MNE and the States in the context of the DAGTVA tax system.
Note: the tab where a WSTAX of 10% is applied without any issue of fiscal competitiveness on ‘Transac-base EN – 6‘ is not shown in the Excel file in reference.
Obligations to find a mutualised and international solution which carry out the restitution of sale taxes in market States invite us to study this constraint that the production state must apply and use the framework of Wayfair Sale Tax in United States with an adaptation in the DAGTVA system.
Go to the tab ‘Distrib 8% WST 4% EN – 9‘ of Excel. egalisation_des_taxes.xls(1)
1 Note: to have the correct opening of the file, please download the document on your computer, do not open directly.
Application of a 4% export WSTAX in D10.
These 4% ( 4.062% rounded off) were not chosen by chance. They allow to obtain a rebalancing in the State of production and an almost perfect proportionality at 13.42% in D55 and I55 with a difference in F55 at 0.00% in the “ Profit / Revenue ratio ” in the two States. It can be said that there will be less interest for an MNE to seek a tax advantageous State!
We also see that the product sold at 3518 with this low rate of WSTAX at 4% begins to deviate at 5.71% nearby the high limit of the arm’s length principle which, in this context, has no longer any object, the market price having tendency, to the detriment of the subsidiary, to become uncompetitive with respect to the reference price.
Some other consequences of this WSTAX :
Market State ‘B’ with a TAX/VAT and CIT rate at 8% :
WSTAX at 0% Tax Revenue ‘A’ = 480 – Tax Revenue ‘B’ = 308 -> Diff = 172
WSTAX at 4% Tax Revenue ‘A’ = 457 – Tax Revenue ‘B’ = 338 -> Diff = 119
Diff = -23 Diff = -53
If with WSTAX we were able to balance the “ Profit / Revenue Ratio ” of the EMN in the two States, we can see that the low tax State loses more than double its tax revenue in front of a State with a standard taxation ! Yet another punishment by default. which can weigh in the balance of negotiations!
Note: This difference does not take in charge other taxes that could be applied as a corollary of the economic activity generated by the transaction.
What to discourage a State of production to launch out in a fiscal environment where its revenues would not allow to ensure a satisfactory economic development.
Depending on the tax parameters of State ‘B’, State ‘A’ can only return part of what it levies as WSTAX, i.e. on the sales tax applied to the transfer price, but only at a height of 8 / 20th, i.e. 26 of the 66 of the WSTAX allocated to the transfer price. Or outright refuse to pay this WSTAX toward a tax haven which could not respond, in an equal manner, by levying practically nothing as sale tax to return. This is where the calculation of compensation for development aid, which could heavily penalize tax havens, may become involved.
About development aid :
It should be borne in mind that development aid with DAGTVA would no longer be done in a global way where a State or group of States decide to grant an envelope of aid to a beneficiary State but on the balance of the transaction observed.
All the details on the allocation of this aid on this page: Awarding international grants
We will therefore study the reverse situation where a low-tax State must comply with the Wayfair Sale Tax law in United States, in this page :