– DAGTVA explanatory documents on the calculation of transfer prices –
– Situation where State ‘A’ of production has a VAT and IS rate at 8% –
We first studied the situation of an ‘idealized’ transfer price and then presented the situation of a transfer price in a market state which had a VAT and IS rate at 8% .
Now, to enter into different fiscal and production parameters, we will now analyze the reverse situation where it is the production State which has a VAT and IS rate at 8% in order to see the consequences on the results for MNE and States in the context of the DAGTVA system.
Go to the tab ‘ Produc. 8% EN – 8 ‘ from 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.
The parameters have been modified as follows, taking the basic situation of an ideal transaction from the ‘ Transac-base EN – 6‘ tab, with the parameters below.
‘B’ and ‘A-B’ being automatically unchanged by the fiscal parameters of State ‘B’.
Parameter change in state ‘A’ of production :
The variables applied for State of production ‘A’ are:
– The corporate tax rate: 8%,
– The local TAX/VAT rate: 8%,
– The WSTAX (1) is at ‘ 0%‘.
(1) – Wayfair Sale Tax transformed into Wayfair State TAX – either: WSTAX .
The variables already applied for ‘B’ therefore ‘A-B’ are:
– Corporate tax rate: 30%
– The local TAX/VAT rate: 20%
First observations :
Whether we vary the TAX/VAT rate in D8 in State ‘A’ at will, this does not change the amount of the transfer price in D28 !
Indeed, with DAGTVA, the transfer price is fixed according to an indirect taxation upstream of the fixing of this price by the addition of an expected gross theoretical profit then added to the production cost. At this level the TAX/VAT on purchases which will be refunded does not influence this calculation. With DAGTVA, the indirect taxation assigned to the transaction does not influence the calculation of the transfer price.
As a consequence, only the CIT in D6 modifies this transfer price by acting on the direct taxation of the expected profit on the sale.
It can be concluded, at first sight, that with DAGTVA, the variation in the indirect tax rate applied upstream on a production does not modify the transfer price of this production. As the transfer price is not modified, no data in State ‘B’ is impacted by the variation of the TAX/VAT rate in ‘A’.
We can also note that it would take a TAX/VAT rate at ‘0%‘ in ‘A’ to see the same value at 500 of residual profit in D48 and I48 . Under these conditions, the residual profit would be heavily taxed with more than 20% taxable profit.
Despite all the advantages to be had with a significant tax differential, low taxation in a production State, the MNE can only note that a small market price difference in its favor at -3.33% in K60, it is give yourself a lot of work to earn little! This is only the first setback, MNEs who often seek this type of production situation to import them, and here we saw a simple importation. But when it comes to importing production that has already been partially exported from a « standard » tax State to a low tax State, as in the Distrib 8% EN – 7 tab, a third proportional taxation will be applied to exports on the one hand and to imports on the other.
This will make it possible to calculate very precisely the turnover achieved in each jurisdiction, possibly being subject, on the part of the States between themselves to a fiscal balancing which seems, for the moment, out of scope for negotiations and impossible. to be determined apart from what is presented to you in this area with the DAGTVA proposal!
We also see that the low tax revenues of the production State ‘A’ are all the more affected as the rate of TAX/VAT and CIT are low with a loss of more than half at 210 in D74 instead, in the tab ‘Transac-base EN – 6‘ at 480 with a balanced taxation of TAX/VAT at 20% and a rate of CIT at 30%.
Therefore, it would be difficult for this production State to want to return sale taxes to the market State in this context and for certain tax havens which do not levy anything, how will they manage to comply with these international regulations? It is this implicit tax result of the production State that is more interesting than the MNE result as it will induce an obligation for this State to join the ‘fair tax system‘ that is offered with DAGTVA and will respond to binding guidelines, by default, as stipulated for amount C.
You will notice by consulting all the other results that the MNE continues to do a good operation being in a production jurisdiction with low taxation, but with a fiscal proportionality observed, which does not call into question cross-border trade and the development of modest economies (RLEmo – RBSpg) which find it difficult to tax at an average international level, but bring these states into the logic of international tax transparency that the G20 is seeking through the request made to the OECD to find a mutualized solution.
With a WSTAX at ‘0%‘, as in all cases presented so far, all indirect production taxation will be assigned to the TAX/VAT to be collected in D26 .
As you have seen in this page, the DAGTVA system, if it solves the problems of proportional distribution of taxes and the knowledge of the turnover achieved, it is not entirely satisfactory with improvements which remain possible, it is is what we will study in the next page with:
A configuration where State ‘A’ with standard tax rates applies a WSTAX at 4% and a market State ‘B’ with a TAX/VAT and CIT rate at 8% :