– DAGTVA truth table –
DAGTVA® – Distribution of MNE profits
|Problems exposed, requests, constraints and subjects
|Ap – presumed standard or routine profit based on assumptions.
Quote : Appendix – Detailed proposal on profit allocation
Amount A (RBAag)
51. The first type of profit, Amount A, would reallocate a portion of the deemed residual profit of a multinational business (on a group or business line basis) (RBAbp) to market jurisdictions irrespective of the location and/or residence of that business, consistent with the creation of a new nexus unconstrained by physical presence requirements. The deemed residual profit would represent the profit that remains after designating a deemed routine profit on the activities of the group or business line (RDAbs). This reallocation would specifically address the concerns raised by the remote and non-physical participation of some businesses in the economy of a market jurisdiction, and the question of how taxing rights on income generated from cross-border activities in the digital age are allocated. Similar to existing profit allocation rules, it would have effective application to both profits and losses (RBAtb), but specific rules may be considered for the treatment of losses (e.g. claw-back or “earn out” mechanism).
The justice of taxation must be applicable to all with the same precision, the word « presumed » has no place in a document like this one. Then it is understandable then that an agreement between States on assumptions does not obtain their assents on an uncertain common solution! Consequently, this sentence also implies that one could precisely quantify the standard and routine benefits before taking care of whether to see a residual profit. This can only exist if all the benefits have been calculated and possibly withholded. As the DAGTVA calculation of transfer prices show in the direct taxation on the transaction, jurisdiction by jurisdiction, it does not seem possible that we can apply this kind of directive to a group or an MNE based on a presumed tax situation which will be taxed locally on each entity. For the taxation of a branch of activity, this remains the responsibility of each jurisdiction.
It can be added that the justice wants that the taxation must be the same for all, companies and consumers. In this case it is impossible to obtain a judjment in a trial in favor the tax autorities if an arbitrary and imprecise taxation against a seller compagny (MNE or other) is applied. In front of States, in case of trial, MNEs will win in all situations.
We will have to see, secondly , when we really have knowledge of the profits made under the conditions of a new paradigm, added to a taxation of MNEs on a direct taxation better distributed between States, whether it could be justified that we adds additional taxation on profits made.