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|
|37||Rules for the distribution of profits – General concepts.||Pillar 1||8||20||RBRge|
Quote : New and revised profit allocation rules (RBRge)
24. Once it is determined that a country has a right to tax profits of a non-resident enterprise (RBNar), the next question is how much profit the rules allocate to that jurisdiction. This matter is currently answered by Article 7 (Business Profits) of both the OECD and United Nations Model Tax Conventions.
25. In the case of a resident enterprise transacting with its own affiliates, countries have taxing rights over the profits of that enterprise (RBRfa) in accordance with Article 9 (Associate Enterprises).
In order to be able to tax correctly profits that have been created, without the physical presence of the company that generated them locally, the first solution for the buyer’s country (A) that could claim them, it is to be informed of the commercial transaction and from which origin country, in order to record a volume of transactions subject to taxation from the seller country. In B²C transactions made from an Internet marketplace in a jurisdiction (B) which is unknown, sometimes even to the buyer, it is necessary that the seller’s tax authorities of him has the obligation to inform the buyer’s jurisdiction. This is what is described in the slide show in reference in point (2) below to ensure that this directive is respected, the market jurisdiction (A) will issue the import barcodes to the seller. Indeed with the protocol SAF-T developped by OECD, the transmission of information between taxation authorities brings the digital coordinates of the seller will be known and this in real time.
It is obvious that if the tax authorities of a jurisdiction did not comply with this obligation to provide these informations to the market place, any import would become impossible.
You will also be able to see with the DAGTVA transfer pricing calculation, that the placing of a product on the market jurisdiction cannot exist outside an importing company structure which would necessarily be approved by this tax authority. This importing company structure can be an entity of the MNE.
In the RBNge section, we can read that in the DAGTVA transfer pricing calculation, profits are distributed proportionately between States where the transaction takes place and this taxation is in accordance with the level of each local tax pressure.
With DAGTVA, the days when a tax haven received turnover and hosted profits from companies located in other jurisdictions where they only have a letterbox, those days are over!
This does not mean that MNEs could not use the profits made as they see fit.
It should be borne in mind that with DAGTVA, the taxation of MNEs, even if it will continue to be supervised in the central taxation offices, the taxation will no longer be collected at the only place where the headquater of each is registered. The main goal, as has been specified, is the obligation to have permanent establishments in each State where activities are carried out. The consolidated financial results will only appear at the head office during general meetings, the management of MNEs will be modified by this impact in its next commercial and financial choices.
As it was explained above, the DAGTVA transfer pricing calculation requires by the entity of an MNE to have a permanent establishment(*) in each State of activity, this obligation creates a default link rule, but also requires it to comply with the locally applied tax rules. There is no longer any loophole in the taxation of local activities. This last observation will oblige, not without problems, the tax havens to apply a taxation locally in order to be able to return the sale taxes where they must be retroceded.
With the slide show in reference
- 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 the 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 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.
Find all the sections on this topic about link rules: RLPhp, RLCpp, RLNet, where taxpayers trade with or without physical presence in the market State: RBMap, RBNge, RBIns.