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|
|32||Amount A – Fraction of the presumed residual profit.||Pillar 1||6||3||RBMap|
Quote : Increased Tax Certainty delivered via a Three Tier Mechanism. The approach increases tax certainty (PLSju – PRSju) for taxpayers and tax administrations and consists of a three tier profit allocation mechanism, as follows:
‒ Amount A – a share of deemed residual profit6 allocated to market jurisdictions using a formulaic approach, i.e. the new taxing right (RBMap);
(6) The deemed residual profit used for Amount A would be the result of simplifying conventions agreed on a consensual basis. This means that it would only seek to approximate, without precisely quantifying, the amount of residual profit of a MNE group (RBMap)
First of all, we must consider to obtain fiscal legal certainty by wanting to retrocede to a market State profits of any kind, legally acquired, is neither the problem nor the business of an MNE, but that of a State which is aware about the turnover achieved locally by these MNEs and has not properly taxed companies operating in its territory in order to need to be returnded all or part of the taxes collected elsewhere to balance its incomes.
It is not the role of an MNE to return a profit margin legally acquired in another jurisdiction. How and by what right would it do it?
To substantiate the situation, it is also necessary to have knowledge of the profits made in the market jurisdiction, whether they are residual or not, then we see that the priority is to have this knowledge above all.
But we see that in the DAGTVA calculation of transfer prices , there is no planned retrocession of profits, whether they are residual or not and that the notion of presumed by this fact does not exist and even could not exist due to the accounting accuracy of the cross-border transaction in a transactional tax system. With DAGTVA, there is no retrocession of the direct taxation of MNEs comes from the sharing of this taxation into a tax on profits better distributed in each State concerned by the transaction.
The DAGTVA process makes this retrocession unnecessary in B²B transactions, due to the fact that a permanent establishment recognized in the market jurisdiction where the MNE will be taxed at the level that the local tax authorities have decided, if is required.
The attribution to the market jurisdiction of a fraction of the presumed residual profit (6) which is calculated according to a formula-based approach, i.e. the new right to tax, with what comes from be specified in the previous paragraph, given the high level of taxation which is already applied to MNEs, if we want to introduce a new tax right, we must delete one that exists and if this is not the case, there is a risk that MNEs will add on this new tax right to their selling prices. Which is what GAFAs have done following the arbitrary taxation of certain countries, including France. It follows that it is the French companies and consumers who paid this GAFA tax and not the GAFAs themselves!
This new right to tax is not part of the DAGTVA process by default . As the residual taxable profit above 12%, as suggested by the OECD, being levied on the basis of the transaction, we will see, in the following paragraph, that this will enrich jurisdictions with modest economies. The notion of calculation formula, necessarily approximate and arbitrary, also having no reason to exist in a transactional tax system applied with a great accuracy.
It is also important to realize that the shared taxation of MNEs as explained with DAGTVA will go directly to swelling the coffers of states with modest economies and (RLEmo) where MNEs have made production choices. We see through this that part of the interest of MNEs in wanting to produce in different States for financial and fiscal reasons will decrease to make way for the reason of economic development, with the impossibility of repatriating taxations levied from a low-tax States. Consequences which de facto weakens tax havens.
Regarding the distribution of profits:
As clarified on the RBSju page , the DAGTVA transfer pricing calculation takes into account in the « amount A » mechanism, not only residual profits, but also profits: standard, routine and intangible, from the moment when they are invoiced, except that these résidual profits will not be returned to the market jurisdiction. They are treated fiscally during the same time of the transaction, this is the advantage of the DAGTVA 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 speak here about the direct taxation which can be levied, as today, without modifying existing local taxation laws.
There is therefore nothing to renegotiate in this area which is the responsibility of each sovereign State, there is no new right to impose the modification of the direct taxation, with the ease of having a majority international agreement accepted in this area and with the probable consent of United States, which has already legislated internally in this domain.
The fact that there is, with DAGTVA, no new tax right also contributes to the simplification of the hoped for an international tax system (related pages: RLSrl, PLSsy , RBAsm, RBAas, RBAps).
You will see in the international taxation balancing calculations and presented in the document, that only a part of the indirect taxation, which must be paid by the consumer in the market State, is returned to the latter, under conditions which may be very restrictive as explained in the RBMcs section dealing with the “Amount C” option.
It should be borne in mind that with DAGTVA, the taxation of MNEs, even if it will continue to be supervised in the central offices, it will no longer be and will no longer be collected at the only place where the headquarter office of each MNE is registered. As it was specified with the obligation to have permanent establishments or having a representative stucture, in each State where the activities are carried out, the consolidated financial results will only appear during general meetings, the management of MNEs will be modified in its commercial and financial choices by these results.
Note: This section does not deal with B²C transactions where a business, which may be an MNE, sells to an end consumer in a market State where it has no physical presence. This subject is treated globally in this page by referring to B²C slideshows like this one , but also in sections which make the device applicable in all the conditions of its internationalization but does not authorize, except agreement of the taxation authorities (slide show in reference – slide 14) in accordance with Article 7 of the OECD conventions , to allow an ultimate consumer to export a product he has sold.
It will be necessary to see, in a second step, when one will have really knowledge of the profits realized under the conditions of a new paradigm, added to a taxation of MNEs on a direct taxation better distributed between States, if it could be justified that one adds additional taxation.