– DAGTVA truth table –
DAGTVA® – Distribution of MNE profits
|Problems exposed, requests, constraints and subjects
|Creation of a link even in the absence of physical presence.
27. As noted, given that the new taxing right would create a nexus for an MNE group even in the absence of a physical presence (RBEla – RLPph – RLCpp – RLNet), it would be impossible to use the existing rules to allocate profit to this new nexus (RBAbt) in cases where no functions are performed, no assets are used, and no risks are assumed in the market jurisdictions. Therefore, new profit allocation rules are required for Amount A (RBMar).
You will find the answers to this question in various sections of this study concerning link rules. With DAGTVA, the establishment of a business link is created even without physical presence in the case of B²C transactions, but without resorting to a new tax law which would penalize international trade. In B²B transactions with DAGTVA the permanent establishment is mandatory for both parties, whether they are in the same MNE or in separate companies.
With DAGTVA, the new link rules without physical presence conditions are still subject to the fact that; following the digital declaration of the sale, the seller’s tax authorities will accept or not that the transaction continue. Therefore, as detailed below, there is no longer need to have a physical presence in the State of consumption for the MNE to be properly taxed by the two States because the seller’s State must be informed by the buyer’s State of the existing transaction. You can see this in the study of the new DAGTVA transfer pricing method with more details below.
NOTE: It is also important to note that the export of a sold product can only be done by an approved company in the State of production, whether it is multinational or not, and that if the tax authorities of both countries allow it. In fact, as the tax authorities of the two States are in constant communication, the State of consumption has perfect knowledge of the entire transaction.
The procedure would work like this:
- 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 and import authorizations do not come from fraud. There must be correspondence in the references of the tax returns.There must be correspondence in the references of the tax returns in slide 21 if the transaction takes place from a tax haven (in the declarative tax system slideshow above). It can no longer escape the declaration procedure, it is up to it to tax the sale or not. But if for various reasons the tax return is not made and the tax locally levied, in any event, the market state will want its consumer’s sales taxes to be returned to it and the production tax haven will then have to pay these taxes on its own funds!
To conclude this page the actual system of taxation of VAT group or Tax group affected to a MNE disappear.