– DAGTVA truth table –
DAGTVA® – Distribution of MNE profits
|No.||Problems exposed, requests, constraints and subjects||Origin||Pg||Li||Doc|
|70||Qe – withholding tax as a collection mechanism for «Amount A» .||Pillar 1||10||44||RBQrs|
Quote : 2.5. Pending key questions
Other implementation issues.
39. Where the tax liability for Amount A is assigned to an entity that is not a resident of the taxing jurisdiction, enforcement and collection could be more complex (RBQoc). It is worth exploring whether a withholding tax would be an appropriate mechanism for the collection of the designated Amount A (RBQrs). However, if countries choose to use it (and as an administrative mechanism to simplify and assure the collection of an underlying taxing right, it would be a matter for domestic law) it would be necessary to agree the features of the system of withholding (RBQsc) that jurisdiction could commit to apply.
First, there is a confusion in this text above because the taxation type concerned by the withholding is not defined. On indirect taxation or applied on direct CIT, we don’t know?
« But we see in the DAGTVA calculation of transfer prices, that it is not intended retrocession benefits whether residual or not and 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.
With DAGTVA, that there is no provision for retrocession of a part of the direct taxation of MNEs, this comes by the sharing of this taxation into a taxation on profits better distributed in each State, by returning only the part of the indirect taxation. Only a part of the indirect taxation is returned in the market state calculated by the DAGTVA process.
The DAGTVA process makes the on-lending of profits unnecessary until these benefits made in market States will be unknown. »
As a result, the notion of withholding tax has no longer any justification, but I can still specify that in the DAGTVA calculation of transfer prices , you will see in D40 and D41 of the spreadsheet from tab 6 (preferably opened after download by saving the file on your computer), that indirect taxation may be levied on each transaction. It is a form of withholding tax where we see in the slide show referenced in slides 20 & 21 that the levy of the tax that must be returned can occur earlier before the credit, which makes it possible to have no effect on the cash flow of the seller or the MNE seller part.
It important to note that in case of a cross-border transaction between entities of the same MNE, what is levied in the seller country is returned in the buyer entity with no effect on the indirect taxation inside this MNE.
Within an MNE this expectation of payment might not be justified if the MNE’s bank account(s) are sufficiently funded. What is taken in one jurisdiction is returned in the other.
But beware, in DAGTVA, these operations only concern indirect taxation. Regarding direct taxation, no State has the power to act on the taxation of a fiscally sovereign and independent jurisdiction. It is better to promote a balanced distribution of profits between States to resolve this problem which cannot come to the fore in negotiations as long as the turnover achieved in each jurisdiction is not recorded by an automatic procedure like the DAGTVAprocess!