– DAGTVA truth table –
DAGTVA® – The linkage rules of the taxation system
|No.||Problems exposed, requests, constraints and subjects||Origin||Pg||Li||Ref.|
|25||No-taxation without permanent establishment with physical presence||Pillar 1||9||2||RLNet|
Quote : Currently, in a jurisdiction a non-resident company is taxable on its business profits only if it has a permanent establishment there (RLNet). That means having some form of physical presence.
DAGTVA confirms this obligation to have a permanent establishment wherever an MNE wishes to trade. By analyzing the new DAGTVA transfer pricing calculation, we realize that the « reference transaction » that would determine a market price if everything were produced by a local company, respecting the arm’s length principle, requires the MNE to have a permanent establishment in Market State and you’ll see why.
You will find that this DAGTVA transfer pricing calculation is not just about trading profits. It is also tackling indirect taxation in order to meet the obligations in response of the WSTAX.
This obligation of MNEs’s taxation is also essential for the market State because, with its fiscal parameters and those of the State of production, the calculation of the possible transfer price will depend on the taxation applied also in the market State which therefore requires the presence of a permanent establishment of the MNE necessarily taxed in this process.
This calculation also makes it possible to calculate what must be returned to the market state, as sales tax within the framework of the WSTAX, which will also condition the compensation for development aid if they are provided for. The market state will therefore have every interest to have MNEs with permanent establishments locally(*), but above all, this State it will not be able to do otherwise to comply with international obligations in this framework!
The market State can also very easily stop the transaction when it receives the first information from the production state if the MNE does not have a permanent establishment, a transaction where local taxation could be applied.
Note: One can even consider applying the sale taxes returned at a higher level rate than the production State levy (not covered in the presentation) , which may help a country with a modest economy to receive sale taxes at level higher than he taxe locally, by the sole fact that it is difficult to apply a high level of indirect taxation on consumption in a country where the purchasing power of consumers is low.
- 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 that sale is authorized by the buyer’s State in special circumstances where the seller would not have a physical presence. The main thing for this market 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.
We see that the tax authorities of the Market State expect in B²B in (3) a digital declaration of purchase, which requires that the MNE be correctly registered in the Market State.
On the other hand, the DAGTVA method of calculating transfer prices requires that tax havens open wide the doors of their taxation. You will also see that more the taxation is reduced in these tax havens, more they will end up being the only ones not to be able to receive the returned sale taxes, but also the compensatory international aid. If we add that MNEs with DAGTVA will no longer have any interest in seeking advantageous tax environments, these non-cooperative States will end up having only the income from the taxation of local production and distribution!
As I wrote, tax havens will therefore have to tax local MNEs so that their tax authorities can return the sales taxes expected in market states, within the framework of the WSTAX. In fact, they will do not, how to return those sale taxes when they aren’t collected ! The new DAGTVA transfer pricing calculation will therefore bring a significant constraint for certain States, considered as tax havens, subject to legally binding and effective dispute prevention and resolution mechanisms ‘OECD Amount C’ (RBMcm) but also a global solution in the United States by an improvement in the application of Wayfair Sale Tax.
DAGTVA confirms this obligation to have a permanent establishment wherever an MNE wishes to trade, which allows the taxation of profits on each local activity.