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|
|51||Mt A – Repartition key based on sales.||Pillar 1||9||17||RBMac|
Quote : New and revised profit allocation rules (RBRge)
30. Against that background, the “Unified Approach” proposes the following three tier mechanism:
Amount A – A new taxing right for market jurisdictions over a portion of within the scope MNE groups’ deemed residual profit (RBMaf – RBMag). This could potentially be calculated on a business line basis. In broad terms, this deemed residual profit (RBMag) would be the profit that remains after allocating what would be regarded as a deemed routine profit on activities to the countries where the activities are performed. This would be determined by simplifying conventions, and require the determination of the level of the deemed routine profit and also a decision on the proportion of the deemed residual profit that should go to the market, which in turn would be allocated to particular markets meeting the new nexus rule through a formula based on sales (RBMac). Percentages remain to be determined and would be part of the consensus-based agreement among Inclusive Framework members (RBMai).
First it seems that we must have a simple consensual baseline for calculating where the profit is made, before to know the part that should be divided among each States. And in order to obtain this information, it is necessary to know how a transfer price could be defined simply with a process that would give the information allowing, by way of logical consequence, to define the taxation which would be applied on the transaction. It is this principle that matters which is rudimentary presented to you by downloading the Microsoft ® Excel table : egalisation_des_taxes.xls, with the explanatory comments pages that define how a transfer price could be calculated with the resulting taxation, both for the MNE and each State concerned by the cross-border transaction.
It is this consensual baseline which is in way to be achieve in United States with all decisons for applying the law « Wayfair Sale Tax » and it is this consensual baseline which will became the process of a Word Single Taxation system. It is probable that United States imposes this process in the context of OECD Pillars 1&2 for the simple raison that, the other tax laws over the World will have to comply the US tax laws and not the contrary. United States represent a reduced model of the tax World which is demanded by the G20 to the OECD with more fifty States that matters for only one voice over 136 others in the talks of a global tax solution.
Likewise, we have seen that the « Amount B option » was not retained in the DAGTVA proposal and that this allocation of fixed remuneration was no longer justified following a better distribution of direct taxes in each of the States involved in the transaction, but especially how to envisage this restitution if these two States are not aware about the amount to be processed. This is what was presented in the foreword in a timetable which will relegate this possible provision to the end of the talks when the States will know what it is possible to attribute!
As for the « Amount B option » , at first glance, apply an arbitrairy taxation that would be based on a distribution key as long as we do not know the level of profits that could justify this taxation and their distribution among States, cannot be retained.
The fact is, with DAGTVA, no new tax right contributes to the simplification of the hoped international tax system (related pages on simplification: RLSrl , PLSsy , RBAsm , RBAas , RBAps).
We can also read in the RBMcs page:
« From a pure tax standpoint, the fact of wanting to return an additional profit in a foreign jurisdiction can only be done at the level of the State tax authorities and in no case as explained below by the MNE, which would imply that firstly, this profit was calculated by the local tax authorities, following a tax declaration by the local entity of the MNE (which is not certain) and necessarily over a very long tax period over accounting years which can be fenced. Secondly that this taxable additional benefit identified was notified, by return, to the MNE, with a transfer of it at destination a foreign jurisdiction, where the execution of the latter will be difficult to control, the whole with an impossible approval of the authorities of taxation on the part of the recalcitrant States with the transparency and the shipment of a fiscal windfall to which they are very ‘attached’! If such processes were put in place,MNEs would manage to declare substantial profits to be returned in tax havens with a worse situation than before! »
With the precision of the DAGTVA transactional system about the calculation of transfer pricing, the notion of a necessarily approximate fixed compensation has no justification, as explained in the page RBMap dedicated to the « Amount A » option.
These taxes based by an allocation key option could eventually be negotiated last when everything else will be in place, used and analyzed to learn from it. If all goes well in several years!