MNE benefit RBAcm

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
82 Ap – calculate of amount A on the basis of an agreed level of profitability. Pillar 1 14 25 RBAcm

Quote : Appendix – Detailed proposal on profit allocation

Amount A (RBAag)

54. The second step in calculating Amount A would seek to approximate the remuneration of the routine activities based on an agreed level of profitability (RBAcm). In broad terms, these are profits which, by analogy to the residual profit split method, would be regarded as rewarding routine functions. They are accordingly excluded from the calculation of the pool of profits from which the allocation to market jurisdictions would be made (RBAbe). The level of profitability deemed to represent such “routine” profits could be determined using a variety of approaches, but a simplified approach would be to agree a fixed percentage(s), possibly with variances by industry (RBAas).

The transactional taxation of the DAGTVA transfer pricing calculation does not set any level or breakeven point. For indirect taxation, in MNEs, we saw that it was transparent. With regard to direct taxation, it will be up to each jurisdiction to maintain the arm’s length principle within acceptable parameters and an agreed level of profitability by the tax authorities.

This is what is explained in the comments of the calculation after dowonload and open the Microsoft Excel file egalisation_des_taxes.xls tab 6: « Transac-base EN – 6 » .

« Under the control of the taxation authorities of ‘B’, the MNE in ‘A’ may not also fall below a production multiplier in D13 which would allow the ‘imported’ market price to be lower than that from local production in K60. With DAGTVA, the MNE in ‘A’ could not offer a selling price at a loss which would be automatically corrected by its own tax authorities to which the MNE must justify that it wishes to sell below this ratio of 28% in D13 which would imply that this MNE did not respect the arm’s length principle which will applied on the production in the market State!

One can wonder today by what sleight of hand MNEs are satisfied with profit thresholds in the state of production at 0.5%, which would lead with DAGTVA to a deficit close to 20%!

In the event of non-compliance, the transaction can simply be stopped until an agreement is reached or the State in fault is penalized within the legally binding framework mentioned in the option of « Amount C » .

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