– DAGTVA truth table –
DAGTVA® – Distribution of MNE profits
|Problems exposed, requests, constraints and subjects
|Legal certainty – Arm’s lenght principle
Quote : Strengthening of legal certainty in tax matters implemented via a three-level mechanism . This approach strengthens legal certainty in tax matters for taxpayers as well as for tax administrations and consists of a three-level profit sharing mechanism,
• New Profit Allocation Rule going beyond the Arm’s Length Principle. It creates a new profit allocation rule (RBSju) applicable to taxpayers within the scope….
First of all, the notion of « legal security » is based, as its name suggests, on laws guaranteeing this security, laws passed locally by sovereign States. Therefore, if we want to obtain an international consensus, in the case of a global system of taxation, we must make all the States of the world accept new laws and it is not a simple thing to do. States recalcitrant to tax transparency or with special interests will always be there to abort decisions that might be in the better interests of the majority of others and as William Morris PwC’s Deputy Global Tax Policy Leader says in a Bloombergtax article .com of July 28, 2020 , « There are 137 states which have divergent interests in this project of a globalized taxation system« !
If one does not want to be confronted with this problem, then one must use a system which is not above the laws but which is free from them or which does not need them, where accepted processes by, say a majority of States, would naturally impose themselves on others, forcing them to include themselves in the process, like a current of water which carries away whatever is in its path. This is what DAGTVA does which is a technical device, in which there are no laws, where it is impossible to prohibit the levying of a tax on a fund movement, an action which can be carried out by simple subtraction, one of the four basic operations and there can be no law to prohibit doing a subtraction!
As stated in the quote « legal certainty in tax matters for taxpayers as well as for tax administrations, it consists of a mechanism for distributing profits » . We are talking about a mechanism and we have seen that DAGTVA is a technical device and therefore a mechanism that can be applied simply , as no one can prevent an apple from falling from the apple tree! Apple may be not the good fruit to explain the process !
Regarding the distribution of profits :
The DAGTVA transfer pricing calculation takes into account in the « Amount A » mechanism, not only residual profits, but also standard, routine and intangible profits, from the moment they are invoiced, they are treated for tax purposes in the same time of the transaction, it is the advantage of the transactional system where the totality of the taxation is definitively affected for the respective shares in each State where the commercial activity takes place. And we are talking about direct taxation which can be levied without modifying existing local taxation laws. There is therefore nothing to renegotiate in this area of responsibility of each sovereign state in the framework of a Global Single Taxation. You will see inthe balancing calculations of international taxation set out in the document , that only part of the indirect taxation, that which must be paid by the consumer in the market state, is returned to the latter, under conditions which can be very restrictive as in the “Amount C” option.
To leave the subject of this section on legal certainty while remaining in the three-level mechanism, the “Amount B” option becomes irrelevant with DAGTVA, the taxation as a whole being dealt with in the “Amount A” option except for a part of its application which falls within the scope of the “Amount C” option, due constraints that should applied for no-respect the international guidelines in tax matters.
The elimination of the “Amount B” option also helps to simplify the system.