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|
|53||Mt B – Distribution functions always taxable Article 7.||Pillar 1||9||21||RBMbf|
Quote : New and revised profit allocation rules (RBRge)
30. Against that background, the “Unified Approach” proposes the following three tier mechanism:
Amount B – Activities in market jurisdictions, and in particular distribution functions, would remain taxable (RBMbf) according to existing rules (e.g. transfer pricing under the arm’s length principle and permanent establishment allocation under Article 7) (RBMbp).
DAGTVA confirms an obligation to have a permanent establishment wherever an MNE wishes to trade internationally. By analyzing the calculation DAGTVA transfer pricing, one realizes that the « type » transactions defines by the DAGTVA process determine a market price if all is produced by a local company, while respecting the arm’s length principle, this process oblige the MNE to have a permanent establishment in the Market State.
As it is specified in the previous pages: RBDpx , RBRpc and RBNac , you will see in all the study of this proposal for a global taxation system with the DAGTVA calculation of transfer prices, the DAGTVA system never deviate the respect of the arm’s length principle. It even goes further by automatically calculating a theoretical transfer price serving as a working baseline, both by the tax authorities but also for the MNE so that it can present an acceptable commercial action. The aim is to avoid any tax manipulation aimed at derogating from this principle of healthy competition but, above all, by providing a framework for the MNE in its production policies by developing international trade.
As can be seen in the slide show in reference, it is very easy to attribute profits to who generated them and to verify if they were produced in a commercial and fiscal environment while respecting the OECD agreements and this respect of the arm’s length principle.
Open 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 the buyer’s 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 in slide 21. If the transaction takes place from a tax haven (in the declarative tax system slideshow above), this State 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 not locally levied, the market State will want its consumer’s sale taxes to be returned to it and the production tax haven will then have to pay these taxes on its own funds to comply the law!
Important note: The transactions between companies presented in the spreadsheet may also not take place within an MNE, which makes the technical device applicable in all the conditions of its internationalization but does not authorize, except with the 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 that he has sold. Here we see an economy emerging which perhaps exists marginally in C²C but in a form completely unknown to the fiscal parameters currently applied by the tax authorities.
The subject of the restitution of sale taxes in a B²C transaction where an MNE may not have a physical presence in the State of the market is treated for a first approach in this page of June 2019 and in many sections of the truth table.