– DAGTVA truth table –
DAGTVA® – Distribution of MNE profits
|Problems exposed, requests, constraints and subjects
|Ap – profit break-even point & transfer pricing rules.
Quote : Appendix – Detailed proposal on profit allocation
Amount A (RBAag)
51….First, it would permit the isolation of the deemed non-routine profits earned by a business (RBAin). This is important because, by introducing a threshold based on profitability and targeting deemed non-routine profit, the proposed method is designed to materially limit the disruption of the conventional transfer pricing that is applied to routine activities (RBAsr). This would reduce the practical complexity of the proposal and also facilitate the goal of reaching consensus among the members (RBAsm – RLSrl) of the Inclusive Framework (on the basis that no jurisdiction would be required to give up taxing rights over income generated by routine business activity physically located within its jurisdiction) (RBAir).
Second, the use of simplified conventions would facilitate the administration of the new profit allocation approach alongside the current transfer pricing rules (RBDpx – RBPpi – RBPpt – RBMbp – RBMbm) and reduce the scope for disputes – a feature contemplated by all Pillar One proposals.
With transactional taxation, there is no thresohld that could be applied to define on indirect taxation applicable to the transaction and we saw in the previous section RBAsm that, in the DAGTVA system, this indirect taxation internal to the EMN was completely neutral.
For direct taxation which could be defined by profitability thresholds, it remains the responsibility of the tax laws of each jurisdiction. This is what the DAGTVA calculation of transfer prices seeks to regulate and proposed a level at 12%, as suggested OECD, beyond which a residual profit could be taxed. This is only a proposal and each State can do as it wants.