{"id":7563,"date":"2020-09-24T09:29:02","date_gmt":"2020-09-24T08:29:02","guid":{"rendered":"http:\/\/www.dagtva.com\/?page_id=7563"},"modified":"2024-08-07T07:30:30","modified_gmt":"2024-08-07T06:30:30","slug":"transfer-price-calculation","status":"publish","type":"page","link":"https:\/\/www.dagtva.com\/?page_id=7563","title":{"rendered":"Transfer price calculation"},"content":{"rendered":"

Preamble<\/u><\/strong><\/span> : In this study, the DAGTVA transfer pricing model presented here, by its provisions, although it largely takes a logic of what already exists, it may not necessarily correspond to what is applied today<\/span>. It must therefore be interpreted as a new technical solution<\/span> which will perhaps require the revision of certain tax systems and regulations currently in force. This approach will have two main goals:<\/p>\n

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determine through the calculation of transfer prices, the volume of indirect taxation applied to the transaction that could be returned in the market States,<\/li>\n
allow to know very precisely the turnover achieved by MNEs, subject to direct taxation in each jurisdiction of activity.<\/li>\n<\/ul>\n
The solution presented is based on a technical approach capable of bringing the expected result in this area after having responded positively to all of the 109 questions resulting from the analysis of the OECD<\/em> \u201cPillars 1&2<\/em>\u201d files and we must thank this organization<\/span><\/span> to have synthesized the problem to be solved used in:<\/span><\/span><\/span><\/p>\n
The DAGTVA truth table<\/a>.<\/p>\n
Unfortunately, it will be technically impossible to see the birth of another transfer pricing calculation solution that could lead States to harmonize their fiscal actions<\/span>.<\/span><\/p>\n
Obviously the taxation of a multinational company is very complex. What will be presented in this proposal will be in the extreme simplicity of its principle and exposed in the most rudimentary possible manner. <\/strong><\/span><\/p>\n
It is the principle that matters!<\/strong><\/span><\/p>\n
Context<\/span> :<\/strong><\/span> The DAGTVA response on the calculation of transfer prices practiced by MNEs is based on the structure of a head office or entity in a State and of its foreign subsidiaries, all of these entities being considered stable in the jurisdictions from which they operate activities. Indeed, the slide show in reference<\/a> slide 14<\/span>,<\/em> <\/strong> which is the transactional basis, imposes the recognition of a permanent establishment on a subsidiary of MNE to authorize it to trade<\/span>. This initial situation presented here allows the application of a more balanced taxation between States and in full transparency, by putting each of them in front of responsibilities and consequences. It will allow the creation of fiscal links which may not exist in the same manner today, which could lead to a mutualized taxation system.<\/p>\n
Important Note:<\/strong> to have the correct opening of the Excel file below, please download the document<\/strong> on your computer before opening it, do not open directly<\/strong>.<\/span><\/span><\/em><\/span><\/p>\n
To analyze the DAGTVA proposal devoted to the calculation of a transfer price, open in the Microsoft<\/em> <\/strong>Excel<\/em> file egalisation_des_taxes.xls (1<\/span>)<\/a> the ‘ Transac-base EN –<\/span> 6<\/strong><\/span> which presents, through an ‘ideal’ cross-border transaction<\/span>, a production sold from the State ‘A’ by an MNE to one of its subsidiaries in State ‘B’, assuming as a basic principle that the sales variables and tax parameters of each State will define a fiscally and proportionally satisfactory ‘model’ transaction in these two States<\/span>.<\/p>\n
This fiscal proportionality effectively eliminates the interest for an MNE to move activities in order to derive financial and fiscal advantages, while retaining for it only the interest of the presence and the expected commercial development. This \u00ab\u00a0model\u00a0\u00bb transaction will be compared to a third one, the refrence market State transaction<\/span>, which would symbolize, with the same fiscal parameters, all the operations of an identical local production<\/span> since: production, distribution and consumption in this market State.<\/p>\n
This ‘market’ transaction will serve as a basis control<\/span> to verify that the transfer price automatically communicated to the tax authorities of State\u00a0 ‘A’, during the sale at destination the subsidiary in State ‘B’, by the digital invoice declaration, will agree with the parameters on the whole transaction between States. This system external to the MNE will automatically regulate the transfer price<\/span> decided in the secrecy of the MNE’s commercial policies in State ‘A’, but above all and in a simple manner, set out the desirable arm’s length principle<\/span> by setting a reference market price<\/span> of the transaction in cell N28<\/strong><\/span> of the Excel file in the tab 6<\/span><\/strong> ‘Transac-base EN – 6<\/span>‘.<\/p>\n
Detail of the \u00ab\u00a0Transac-base\u00a0\u00bb tab<\/span><\/strong><\/span><\/p>\n
The left column presents the calculation of an applied transfer price according to the parameters defined by and for the company with its consequences for it and for the tax authorities of State ‘A’.<\/p>\n
Consequently, the middle column represents, in this theoretical and ‘ideal’ transaction, the application of this transfer price in State ‘B’ with the same fiscal parameters<\/span> as its production entity in State ‘A’.<\/span><\/p>\n
These two columns, the one on the left and in the center, therefore represent the situation of the movements of funds linked to this transfer price with their chronologies (1 – 2 – 3 – 4)<\/span> from the beginning to the end of the process in accordance with the slide show in reference<\/a>.<\/p>\n
It is important to note that the direct and indirect taxation applicable to the transaction is definitively closed at the end of the bank shuttles (not shown here)<\/span>. ‘Closed’ does not mean withdrawn but can be withdrawn from this moment. In truth, clearing houses in each state will only circulate the difference in sales taxes to be returned to the state receiving the difference in possible refunds.<\/span><\/span>\u00a0<\/strong><\/span>
<\/span><\/span><\/em><\/p>\n
A third column<\/span>, which reflects the cumulation of the first two, makes it possible to verify that the model and the arm’s length principle<\/strong> in cell N28<\/strong><\/span> or K28<\/strong><\/span>, in the form of a percentage, is respected.<\/p>\n
How the cost of production is calculated by the MNE is a matter of its internal decisions and results and is not the subject of this study. Here are presented only the movements of funds corresponding to the payments of the cross-border transactions and the taxation associated with these payments movements between two entities of the same MNE with its consequences, but also the associated tax receipts between states where the transaction took place.<\/p>\n
This reference price will also be useful for the MNE in order to know the approximate reference price of a product not manufactured locally which would respect this principle of arm’s length and thus to be able to develop a non-existent local production.<\/p>\n
We can then consider that this calculation of transfer prices according by DAGTVA would be a decision support tool<\/span>, the MNE could then adapt its transfer price parameters compared to a local production made by a third company which could be more competitive. We will see it, later in the study, in another tab of the Excel file.<\/p>\n
The initial parameters:<\/u><\/strong><\/span><\/p>\n
First action<\/u><\/span> : Apply the seller’s variables data from State ‘A’ to State ‘B’ without taking into account these same variables in application in this State.<\/span><\/p>\n
Important note<\/span>:<\/strong><\/span> in all tabs of the Excel spreadsheet, the word \u00ab\u00a0VAT\u00a0\u00bb (banned in U.S.) is used because the DAGTVA transfer price calculation was developped in this environment, but this process is independent of indirect taxation system and can bring the same advantages than VAT in the U.S. taxation environment (see this page<\/a>). Like you wants, this word ‘VAT’ can be replaced by ‘TAX’ whithout consequences, because the process DAGTVA transfer price calculation equals to have the VAT tax system in all cases, even in United-States, and would thus make it implicitly join the international concert of this type of taxation<\/span><\/span>.<\/p>\n
The variables are:<\/p>\n
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– the corporate tax rate: 30%<\/span>,<\/strong><\/li>\n
– the rate over which residual profits are taxed: 12%<\/span>,<\/strong><\/li>\n
– the local VAT rate: 20%<\/span>,<\/strong><\/li>\n
– the rate of WSTAX<\/em><\/span>^{(1)<\/sup><\/span><\/strong> applied to exports: 0%<\/span>,<\/strong><\/li>\n}
– the %<\/span> VAT applied to purchases: 15%<\/span>,<\/strong><\/li>\n
– the multiplier coefficient applied to the production \/ distribution cost, to obtain a reasonable margin for the sustainability of the company: 50%<\/strong><\/span> for a final margin of around 12%<\/span>,<\/strong><\/li>\n
– the cost of production \/ distribution: 1000<\/strong><\/span>.<\/li>\n<\/ol>\n
(1)<\/strong> – W<\/span>ayfair S<\/span>ale T<\/span>ax<\/em><\/strong><\/span> transformed into W<\/em><\/strong><\/span>ayfair <\/em>S<\/em><\/strong><\/span>tate <\/em>TAX<\/em><\/strong><\/span><\/span> – : WSTAX<\/span> .<\/em><\/strong><\/span><\/p>\n
Note:<\/span> This WSTAX<\/strong><\/span> has always been included in the original version of DAGTVA in 2012 which provided for levying a tax in the state of the seller for it to be returned in the state of the buyer ( page<\/a> and slide show<\/a> )<\/em> .<\/p>\n
Important:<\/em><\/span> As the taxes and production data of the MNE are identical in both States ‘A’ and ‘B’, a transfer price is determined in producing State ‘A’ for a sale in State ‘B’. This purchase in State ‘B’ can be, in turn, either a commercial action in order to determine a placing on the market, but can also turn into an intermediate production which will itself be exported to another State ‘C’ or be re-imported into State ‘A’ (examples in the illustrations of the Pillar 1 document on<\/a> pages 11 and 12).<\/p>\n
These last possibilities, now observed, will not be represented in this first version in tabs of the Excel file, for the simple reason that the principle of re-importation that we know and which can be repeated ad infinitum, by passing the goods and services by several intermediate States, can no longer be applied with DAGTVA without significant tax consequences, because if these ‘norias’ are intentional and virtual, they would end up making any production non-competitive with respect of a local production with the taxation applied at each stage between two States. This would be the end of the norias of transactions between MNEs entities which create import\/export invoices, seeking to reduce taxation as processes described in the illustrations of the Pillar 1 document pages 11 & 12<\/span>.<\/p>\n
First observations<\/span><\/u> \u00a0:<\/span><\/strong><\/span><\/p>\n
With the same variables, the market price I28<\/strong><\/span> is identical to the reference price N28<\/strong><\/span> . The arm’s length principle is perfectly respected by the ratio of the two in K28<\/strong><\/span> in this ideal transaction.<\/p>\n
We immediately see that a local market price is defined by default by the spreadsheet and that it is very easy for the MNE to see if this price corresponds, for a comparable local product, to its sales ambitions in this State. If the MNE wants to respect the arm’s length principle of an equivalent product applicable in that State, it will have, as it does today, to take into account this first parameter which will influence the tax distribution between the two States on income from its activities. But with DAGTVA we will see later that the leeway will be very largely limited.<\/p>\n
MNEs are left free to trade without interfering in their marketing decisions, but it will be very difficult for them to vary their leeway to do anything!<\/span><\/p>\n
Note:<\/strong><\/span> The indirect taxation of exports is, in most cases, zero so as not to penalize them. It is this principle that has transformed the European Union into a kind of tax haven by applying no VAT on transactions between Members of the Union, with the single European market established in 1993.<\/p>\n
In order to provide explanations on what follows, DAGTVA<\/span>, without calling into question the tax consequences of this European decision, will offer an equivalent system with the same qualities but more efficient and much simpler in its functioning<\/span>.<\/span><\/p>\n
You have previously seen the appearance of a WSTAX<\/em><\/strong><\/span><\/span><\/span> . Why have a WSTAX <\/em><\/strong><\/span> ? It is originally the expression of a %<\/strong> used to calculate the amount of what must be returned as sale taxes to obtain the division of the TAX to be collected which will not be reverberate in the transfer price. Applied to export, this WSTAX<\/span><\/em><\/strong>, <\/em>(without consequences on the indirect taxation, we will see that on the explanations)<\/span><\/em><\/strong>, <\/em>is essential because it is what will allow the creation, regulation and standardization of the ‘W<\/span>ayfair S<\/span>ale T<\/span>ax<\/span>‘<\/em><\/strong> in the United States where we saw in the MTC document<\/a> that many discrepancies persist on the application of this law between States. If the DAGTVA system were not to process this WSTAX<\/span> ,<\/em><\/strong> as we will see in other tabs of Excel, the desire to obtain a balanced global taxation system would be called into question by its obvious inapplicability in the fifty federated States of United-States which represent, the first, but also nearly a quarter of the world economy. What would not be conceivable either, is that the world’s largest economy should be excluded from a shared taxation system when it was precisely at the origin, with what the OECD and the United-States are looking for, in the first place, to see the sale taxes returned in the market States<\/span>.<\/p>\n
The W<\/span>ayfair S<\/span>ale T<\/span>ax<\/span>, <\/em><\/strong> it will be the heart of the new global taxes<\/strong><\/span> associated calculation DAGTVA transfer pricing and the slideshow in reference. <\/a>This set could be the future basis of World Single Market<\/strong><\/em><\/span>. The subject will be commented on in detail as the presentations progress.<\/p>\n
Return to the \u00ab\u00a0Transac-base (EN)\u00a0\u00bb Excel spreadsheet<\/span><\/span>.<\/strong><\/span><\/p>\n
Note:<\/span><\/strong> you can use the word ‘TAX’ or ‘VAT’ interchangeably<\/p>\n
You will notice that with a rate of WSTAX <\/em><\/span>^{(1)<\/sup><\/span><\/strong> at 0%<\/strong><\/span> :<\/p>\n}
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In this case, all indirect taxation<\/em><\/strong> applied to the transaction will be transformed into all TAX<\/strong> to be collected (. It will be automatically deducted from the payment by the taxation authorities at ‘A’<\/span>. It applies to a sales price before ‘CIT \/ profit & TAX\/VAT <\/em>^{(2)<\/sup><\/strong><\/span>‘, to obtain, after CIT on profit & TAX\/VAT<\/em><\/span> , a positive value, i.e.: TAX\/VAT to be collected: 330<\/strong><\/span> in D26<\/strong><\/span>,<\/li>\n}
\u00a0<\/li>\n
The transfer price is equal to this sale price before IS \/ profit & TAX\/VAT<\/em><\/span>: 1650<\/strong><\/span>, we can see this transfer price is not impacted by this TAX to be collected<\/span>: 330<\/strong><\/span> in D26<\/span>.<\/strong><\/li>\n
\u00a0<\/li>\n
In State ‘B’, the TAX\/VAT applied to the ‘ purchase<\/em> ‘ of the transfer price<\/span> 330<\/strong><\/span> will be included in the payment of the<\/span> 1650<\/strong><\/span> requested by ‘A’, and will be refunded as deductible TAX\/VAT in I33<\/strong><\/span> in ‘B’, corresponding to the TAX\/VAT collected in ‘A’ in D40<\/strong>, which is equivalent to paying a tax in one state which will be refunded in another and will appear as zero<\/strong><\/span> within the consolidated accounts of the MNE<\/span> .<\/li>\n
\u00a0<\/li>\n
This is the equivalent taxation with the power of the VAT system tax automatically applied to cross-border transactions within MNEs!<\/strong><\/span><\/li>\n
\u00a0<\/li>\n
Consequences, not only is there no indirect double taxation applied<\/strong> to the transaction of the MNE, but the TAX\/VAT is completely neutral<\/span> with a subsidiary which reimburses a tax paid by its parent company<\/span>. This amount to having no indirect taxation on the transaction as we see in the European single market<\/strong>.<\/span> To paraphrase, the deductible TAX\/VAT of purchases is reimbursed in both States, and as we have seen, the TAX\/VAT to be collected from one is reimbursed by the deductible TAX\/VAT from the other, the calculation is verified in I21<\/strong><\/span> which reimburses D40<\/strong><\/span>: This can also be verified on the lines of the taxation authorities where I63<\/strong><\/span> reimburses D64<\/strong><\/span>. On the other hand, the TAX\/VAT collected from 660<\/strong><\/span> to I64<\/strong><\/span> levied on the sale does not concern the defined transfer price, it is an indirect tax on local consumption.<\/li>\n
\u00a0<\/li>\n
The situation presented could be considered as unbalanced and that nothing changes, if we take into account that the MNE seems to make a higher profit in the State of consumption CIT \/ profit & TAX\/VAT<\/em><\/span> at 11.60%<\/strong><\/span> in I54<\/strong><\/span> against 10,18%<\/strong><\/span> in D54<\/strong><\/span> although the gap noted is nevertheless small with 1.42%<\/strong><\/span>. We will refind explanations about this value in the rubric ‘Margin report<\/strong><\/span><\/span>‘.<\/li>\n
\u00a0<\/li>\n
Although it is perilous and mathematically incoherent to add up percentages of profits made under different conditions, we can still see that N54<\/strong><\/span> = D54<\/strong><\/span> + I54<\/strong><\/span> to within a few cents in D55<\/strong><\/span> or K54<\/strong><\/span> in this example the notion of tax haven does not exist<\/span>, it would be the expression of a ‘sensation’<\/em> or ‘ feeling<\/em>‘ of exploitation.<\/li>\n
\u00a0<\/li>\n
We also see that a tax spread over two states is more advantageous by 33.65%<\/strong><\/span> for an MNE, which favors international trade but nevertheless attenuated by almost 23%<\/strong> less profit<\/span>.<\/li>\n
\u00a0<\/li>\n
This imbalance can be taken advantage of as will be explained in the comments section below: State tax revenues<\/span><\/strong><\/span>.<\/li>\n
\u00a0<\/li>\n
The arm’s length clause is also fully respected in<\/span><\/strong> K28<\/strong><\/span>,<\/li>\n
\u00a0<\/li>\n
To comply with Law N\u00b0: 17\u2013494<\/a>, in this ‘ideal’ table, a WSTAX<\/em> <\/strong><\/span> is paid virtually with zero value from D66<\/strong><\/span> to I66<\/strong><\/span>. The tax revenue of State ‘A’ of production is then limited to the TAX\/VAT to be collected and corporate TAX in: D70<\/strong><\/span>, D73<\/strong><\/span>, with the total in D74<\/strong><\/span>.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n
(2)<\/strong> This title ‘CIT \/ profit & TAX VAT ^{‘<\/sup><\/strong> has been left under this name for reasons of ease of reading the Excel table.<\/em><\/span><\/p>\n}
Other comments<\/u> :<\/strong><\/span><\/p>\n
On TAX\/VAT<\/u> :<\/strong><\/span> With this first observation, when we treat taxation at the transactional level, which seems to favor the OECD, we can apply a TAX\/VAT on a transfer price without fiscally penalizing the entities of the MNE in question in the transaction. This also verifies on this point that VAT is a tax on consumption and a better tax system<\/span><\/strong>. The taxation applied to the market price of the sale in ‘B’ in I27 <\/strong><\/span> and ‘A-B’ N27<\/strong><\/span> is from the domain, as has been said, to a TAX\/VAT on consumption.<\/p>\n
MNEs will also have every interest in researching the type of VAT environment in order to benefit from this reimbursement of indirect taxation in the intra-MNE transaction . States which do not apply the principle of this reimbursement would be immediately penalized by MNEs<\/span> which do not seek to establish themselves there, also forcing States to transparent taxation and here we enter into binding directives, by default, such as it is stated for the ‘amount C<\/em>‘<\/strong><\/span><\/span>.<\/p>\n
State and company taxation<\/u> :<\/span>\u00a0<\/span><\/strong> It is important to differentiate between indirect taxation that impacts an MNE, which is because of the relationship between a company that respects the tax laws to which it is subject and a sale taxes that must be returned to a State where the consumption take place. This restitution of sale taxes is the formulation of a request made by one State to another<\/span> in order to equalize their respective taxes due to trade which appears unbalanced.<\/span><\/p>\n
Although online sales platforms have offered to collect these sale taxes for the beneficiary states, as specified in these two articles ( The <\/em> Single World Market<\/em><\/a> and Tax & New Global Governance<\/a> )<\/em>, these companies have a total ignorance of what is the obligation to provide a fiscal response from one state to another. It is a matter between states and not that of online marketplaces and others too<\/span>!<\/strong><\/span><\/p>\n
Indeed, for the obvious reasons that you will see in the presentation of this study, that an MNE will be unable to control all the parameters defining the WSTAX<\/em><\/strong><\/span> and therefore, it is out of the question whether the business world is which takes care of the task of collecting taxes and even less justified profits that could be distributed internationally. We can add that there would be nothing to negotiate in this area<\/strong> before having precise information on the turnover achieved in each jurisdiction by these MNEs!<\/span><\/p>\n
This type of taxation, between States, therefore does not concern MNEs, which must not be penalized in their business activities and this taaxation must be separated from the usual taxation schemes. This is what DAGTVA offers.<\/p>\n
Still in the left column<\/span><\/strong>, as the notion of transfer pricing is not yet relevant, the taxation authorities of State ‘A’ will have to judge only the production part sold<\/span> before comparing it with extraterritorial parameters on which, in the name of the free decision of the sovereign foreign states in question, they have no influence.<\/p>\n
In the middle column<\/span><\/strong><\/span>, the taxation authorities of State ‘B’ having to judge, for their part, only the purchased production part<\/span> and, perhaps by default, make a mutual and cross-check on the regulation of the transfer price stated that can be seen in the slideshow in reference <\/a>slide 16<\/em><\/strong><\/span>.<\/p>\n
At this level of the transaction the notion of VAT does not yet exist, even if it is mentioned at the bottom of the invoices in countries which applied this indirect tax system and, if we are in the case where a WSTAX<\/em><\/strong><\/span> rate is at ‘0%<\/strong><\/span>‘, it then becomes out of question of transferring this production tax corresponding to the VAT to be collected (in the VAT environment) to the State of the buyer<\/span>, especially if the State of destination is a tax haven, which would be a double penalty for the State of production ‘A’ which should pay everything out of its own tax revenues.<\/p>\n
Other remarks<\/u> :<\/strong><\/span><\/p>\n
It is also important to point out, as has just been said, that at this stage of taxation, although it is present, the concept of VAT is not yet in the tax actuality and that the action of taxing a production is independent of the taxation system used. DAGTVA offers the possibility of applying this ‘directive’ internationally without dealing with the taxation system applied locally or abroad but permit also to implement a VAT tax system by default. For United-States, it’s should be the opportunity to join this international tax system without any modifications and the necessity to modify the federal american laws and to be at the start point of a global tax system requested by the G20 to the OECD!<\/strong><\/span><\/p>\n
Margin report<\/u> :<\/strong><\/span><\/p>\n
Although it is perilous to add up percentages of profits made under different conditions, we also see, under these conditions, in D54<\/strong><\/span> and I54<\/strong><\/span> that the ratio of the margins is 1.42%<\/strong><\/span> in F54<\/strong><\/span> , even within the MNE but also vis-\u00e0-vis a local production where it is higher by 0.03%,<\/strong> that this ratio seems very balanced internally. It should be noted that the sum of the local margins within the MNE is practically identical in F55<\/strong><\/span> to a local production with management choices of the MNE which will be more difficult to manage globally compared to a margin made by a company that produces everything in the state of consumption in N54<\/strong><\/span> with a 21.75%<\/strong><\/span> margin. This last value validates a healthy possibility of growth of this local company corresponding also to nearly twice a desirable minimum rate and concentrate the objectives and actions by a MNE on a local consumption.<\/p>\n
A good point in a crutial period when relocations of many productions will have to be necessary.<\/p>\n
Direct taxation on companies<\/u> :<\/strong><\/span><\/p>\n
With an identical gross profit tax ratio of 1300<\/strong><\/span> in N23<\/span>,<\/strong> the gross tax of the MNE is strictly proportional to D23<\/strong><\/span> + I23<\/strong><\/span>.<\/p>\n
If the MNE has a margin practically identical to a complete local production, it is also globally less taxed in K52<\/strong><\/span> at 345<\/strong><\/span> instead of 520<\/strong><\/span>.<\/p>\n
By taxing residual profits above 12%<\/strong><\/span> as recommended by the OECD, the MNE remains below this percentage, which favors, with less total CIT, the international trade but with a better distributed taxation which will be detailed in the following section.<\/p>\n
State tax revenues<\/u> :<\/strong><\/span><\/p>\n
We can see a proportionality of the tax revenues of States with all the same a logical advantage for these revenues when everything is produced locally.<\/p>\n
With this system and the SAF-T protocol<\/a> in version V2<\/a> developed by the OECD, the taxation authority of ‘A’ knows precisely what will theoretically be affected as taxation in State ‘B’ but also with digital declarations invoices which bring together the tax authorities of the two countries, State ‘B’ will know perfectly well the ins and outs of the transaction drawn up in State ‘A’ of production ( slide show in reference <\/a> slide 14 -16 – 22<\/strong><\/em><\/span> ) and vice versa<\/em>.<\/p>\n
In state accounts, imports are always considered and classified as resources, but what poses a problem, is their financing<\/em>. As you can see, the tax revenue of importing State ‘B’, although it is 38%<\/strong><\/span> lower than that of a complete local production, it is with 78%<\/strong> higher than that of the State of production ‘A’<\/span>. We can thus finance imports in the desired balances of the budgets of States with modest economies <\/span>(<\/span> RLEmo<\/a>)<\/span><\/u> and elsewhere too, but not just anyhow !<\/p>\n
The main advantage of the DAGTVA process is that it taxes each business activity locally and it is then impossible for the MNE to shift the taxation applied in each state, which does not mean that the profits made in each jurisdiction could not be reinvested elsewhere.<\/p>\n
First assessment<\/span> :<\/strong><\/span> With the variables presented, compared to local production, an MNE pays less but earns less with more difficulty in sustaining its activities. This MNE will therefore have every interest in considering its offshore activities as proportional income applied to its total activity. The MNE’s desire to want to produce cheaper elsewhere in search of the lowest production cost in order to re-import this production is thus reduced. It will be explained later that at the level of prices and taxation, a re-import will become, given its overall cost, totally non-competitive. This puts an end to the dumping of prices based on wage adjustment variables but also on the noria of intermediate states to dilute the taxation of MNEs!<\/p>\n
Under the control of the taxation authorities of ‘B’, the MNE in ‘A’ may not also fall below a production multiplier in<\/span> D13<\/strong><\/span><\/span> which would allow the ‘imported’ market price to be lower than that from local production in K60<\/span><\/strong>. 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%<\/span><\/strong> in D13<\/strong><\/span> which would imply that this MNE did not respect the arm’s length principle<\/span>!<\/strong><\/span><\/p>\n
One can wonder today by what sleight of hand MNEs are satisfied with profit thresholds in the state of production at 0.5%<\/strong>, which would lead with DAGTVA to a deficit close to 20%<\/strong>!<\/span><\/p>\n
We also see that the multiplier coefficient of 1.5<\/strong><\/span> applied to the document on the set of the two transactions ‘A’, ‘B’ and visible in ‘AB’ does not succeed in making the MNE reach the minimum margin rate recommended of 12%<\/strong><\/span> on its activities broken down over two States, a rate beyond which the OECD considers that residual profits can be taxed, a situation which may slow down the enthusiasm of MNEs to want to produce in low-cost States.<\/p>\n
With DAGTVA, the balance sheet is balanced in this ‘ideal’ situation.<\/span><\/strong><\/span><\/p>\n
Payment obligations<\/span> :<\/strong><\/span><\/p>\n
In this ‘ideal’ Excel table, it should be noted that the movements of funds corresponding to the various payments are compulsory according to a well-defined chronology in the slide show on reference<\/a> . This means that the MNE at ‘A’ which sells to its subsidiary at ‘B’ will only receive the documents for exporting its products to its subsidiary after having actually been paid by the latter. In fact, these are only accounting entries in accounts belonging to the same MNE, but this will be very important to preserve the self-financing capacities of the selling entity that it is credited before the tax authorities take a possible WSTAX. <\/strong> <\/em>Likewise, the importation of a product will be automatically controlled by the tax authorities of State ‘B’ which will have the same information on the transaction as that of State ‘A, in the slide show <\/a> slides 14 – 16 – 22<\/strong><\/em><\/span>.<\/p>\n
If the MNE in State ‘A’ did not get paid by its subsidiary, the physical product of the sale could not end up in State ‘B’ but above all, the MNE would have to justify to the tax authorities in its accounts produced and reported to the State ‘A’, that without any resources it was able to pay, on the one hand the production tax in general represented by the VAT to be collected which will be automatically deducted following the digital declaration of the invoice and on the other hand the local payment of the production cost of the product to be exported!<\/span><\/p>\n
About cash flow<\/u> :<\/strong><\/span><\/p>\n
It should be noted that the chronology of operations presented in the slide show preserves the cash flow of the MNE in State ‘A’ by levying the production TAX (or VAT to be collected) after the total payment of its subsidiary as is specified in the previous paragraph: \u00ab\u00a0In fact, these are only accounting entries in accounts belonging to the same MNE, but this chronology will be very important to preserve the self-financing capacities of the selling entity that it is credited before the tax authorities possibly charge a WSTAX <\/strong>which have no consequences, that it was specified before<\/span><\/span><\/em>\u201d.<\/span><\/p>\n
Bank distributions and permanent establishments<\/span> :<\/strong><\/span><\/p>\n
With DAGTVA, the subject relating to the geographical position of the bank or banks involved in the transaction has no impact on the proposed model, but has the advantage of knowing precisely, on the part of the tax authorities , interbank exchanges wherever they are, following the digital declarations of invoices, that is to say with the SAF-T protocol<\/a>, the tax authorities will be able to see the majority of interbank fund movements linked to these exchanges of goods and services without the need to enter this banking system.<\/span><\/p>\n
BEPS directives are thus automatically applied, verifiable on each transaction in real time and without being obliged to initiate control actions and other retaliations.<\/span><\/p>\n
The banking system will be able to respond, as today, to intra-group movements of funds, the only ones which would not be directly visible in BEPS exchanges, but they will necessarily appear locally in each State with the destination and their uses if these movements come from tax havens, this information that could be shared at the level of the tax authorities to concatenate all the international accounts of an MNE inside the control of an international tax system which would depend, may be, of the United Nations Organisation and its tax regulation.<\/span><\/span><\/p>\n
To corroborate, in DAGTVA slideshows, a bank is assigned to the seller and the buyer in each other’s country. This is an ideal case, but it is quite probable that in the management of an MNE, this situation is hardly ever respected by centralizing the banking management in places which may have nothing to do with the business activities of that MNE.<\/p>\n
With DAGTVA, the geographical location of the banking management of an MNE is therefore irrelevant in what has just been explained before<\/span> by the fact that each entity of the MNE will at some point during these activity, have to be either a seller or a buyer. In these two cases in communication the authorities of taxation will know precisely the destinations of the movements of funds linked with the transactions, with consequently eliminating any banking opacity wherever it is located througout the World<\/strong><\/span>.<\/p>\n
Whatever the places from which the banking transactions would be carried out, the MNE could not conceal movements of funds which could be used to rebalance fiscal and production costs which would not respond to a commercial ethic of healthy competition from wherever they are coming.<\/p>\n
To add to the banking provisions of this first presentation of an ideal situation, we see that the DAGTVA technical device prohibits any use of cryptocurrencies for the payment of cross-border transactions<\/strong><\/span>.<\/p>\n
About stable entities<\/span> :<\/span>
<\/strong><\/p>\n
Considering of its transaction volumes, and an MNE always, with DAGTVA, has entities considered as permanent establishments (article 5 of the OECD tax convention<\/a>) in the States where the activities take place, with predefined fiscal and banking relationships meeting Articles 7 and 9 of these same tax treaties. If this was not the case, the MNE would have to wait for obtaining, after the moment a transaction will be automatically declared to the tax authorities by the dematerialized invoice and having informed all export requests and checks, the agreement of the tax authorities of the two countries on which the transaction depends, to continue commercial operations (slideshow in reference <\/a> slide 14 – 16 – 22<\/strong><\/em><\/span>).<\/p>\n
About free trade agreements<\/u> :<\/strong><\/span><\/p>\n
Free trade agreements are increasingly contested for reasons we all know. We will see in other tabs of Excel by varying the parameters, that the notion of indirect taxation of the transfer price, at the time of its establishment, and this will be explained in detail with the application of W<\/span>ayfair S<\/span>ale T<\/span>ax<\/strong><\/em><\/span> is transformed into WSTAX<\/em><\/span><\/strong>, will render existing or future free trade agreements null and void, because in all possible cases, indirect taxation of the transfer price amounts to establishing de facto a systematic export taxation. This disposition will regulate inevitably the level out, the smooth out at the international level, and among other things, the compensation by the development aid removed<\/a> when tax differences could be observed on the transactional. It would not be the MNEs which would be taxed but the States which would settle their accounts among themselves under the control of the United Nations Organisation and its international tax regulation.<\/p>\n
When indirect taxation applies everywhere and by default at the level of exports and therefore by ricochet on imports, the notion of free trade not only disappears, but would fall into a certain form of illegality if it were not not respected with what would look like the desire to want to circumvent the applied taxation.<\/p>\n
The controls of the tax authorities will ensure compliance with the procedures presented which will go in this direction.<\/p>\n
About the local production<\/u> :<\/strong><\/span><\/p>\n
We have seen with the pandemic due to Covid-19 that essential and strategic productions had to be relocated in order to ensure the security of Peoples in many areas.<\/p>\n
With what has just been said previously, the DAGTVA procedure brings an economic constant with quantified results on the interest of local production which, with an equivalent production cost, also maintains an acceptable fiscal balance for the State of production or market, with the arm’s length principle respected.<\/p>\n
But then, it could be very possible that an MNE could never adapt its transfer pricing parameters to remote production done by a more competitive local third party. The MNE will then have to produce everything outside like the competitor, and we see this with car the manufacturers like Renault which could not produce DACIA in France. But as an equivalent production is possible in the model presented in France. This problem would be real if Renault did not manufacture any automobile in France, but it is a false problem because Renault has been able to adapt its costs to the constraints of automobile production costs in France. The distortion stems from the fact that Renault has found the means to sell its productions in France by financing this State of production, by promoting access to wealth by consumption of this type of low costs vehicle by French consumers with modest incomes. It is this classic situation of access to the wealth of some by maintaining the poverty of others! DAGTVA provides through its international taxation system a regulation of this type of behavior.<\/span><\/span><\/p>\n
We will see, later in the study, in another tab of the Excel file how this problem of re-imports is solved.<\/p>\n
It is not incompatible to see in the oxymoron of globalization, with the W<\/span>orld S<\/span>ingle M<\/span>arket<\/span>, sought by the G20 and the OECD through a mutualized and international taxation system, a globalization refocused by local production obligations economically and fiscally balanced among themselves, but not only to bring answers following the Covid-19 pandemic.<\/span><\/p>\n
We will now have to leave the presented situation of an ‘ideal’ transfer price to enter into different fiscal and production parameters to analyze the consequences with the DAGTVA system.<\/p>\n
But first, let’s study the intrinsic consequences of a WSTAX<\/em><\/strong><\/span> in a frame without to be in the context of tax competition<\/span> :<\/p>\n
Transac-base Wstax 10% EN – 6<\/a><\/p>\n
A configuration where State ‘B’ of the market has a TAX\/VAT<\/strong><\/span> and CIT<\/strong><\/span> at 8%<\/strong><\/span> :<\/p>\n
Distrib 8% Wstax 0% EN – 7<\/a><\/p>\n
A configuration where the State ‘A’ of production has a TAX\/VAT <\/strong><\/span>and CIT<\/strong><\/span> at 8%<\/strong><\/span> :<\/p>\n
Produc 8% Wstax 0% EN – 8<\/a><\/p>\n
A configuration where State ‘A’ applies a WSTAX<\/strong><\/em><\/span> of 4%<\/strong><\/span> with standard tax rates and State ‘B’ of the market with TAX\/VAT<\/strong><\/span> and CIT<\/strong><\/span> at 8%<\/strong><\/span> :<\/p>\n
Distrib 8% Wstax 4% EN – 9<\/a><\/p>\n
A configuration where State ‘A’ applies TAX\/VAT<\/strong><\/span>and CIT<\/strong><\/span> at 8%<\/strong><\/span> and WSTAX<\/strong><\/em><\/span> of 4%<\/span>:<\/strong><\/p>\n
Produc 8% Wstax 4% EN – 10<\/a><\/p>\n\n","protected":false},"excerpt":{"rendered":"
Proposal for a Global Taxation System \u00a0– Explanatory documents DAGTVA on calculating transfer prices – – Basic situation in an ideal cross-border transaction – (French original version) Preamble : In this study, the DAGTVA transfer pricing model presented here, by … Continuer la lecture →<\/span><\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"parent":7484,"menu_order":0,"comment_status":"closed","ping_status":"closed","template":"","meta":{"footnotes":""},"class_list":["post-7563","page","type-page","status-publish","hentry"],"_links":{"self":[{"href":"https:\/\/www.dagtva.com\/index.php?rest_route=\/wp\/v2\/pages\/7563","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.dagtva.com\/index.php?rest_route=\/wp\/v2\/pages"}],"about":[{"href":"https:\/\/www.dagtva.com\/index.php?rest_route=\/wp\/v2\/types\/page"}],"author":[{"embeddable":true,"href":"https:\/\/www.dagtva.com\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.dagtva.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=7563"}],"version-history":[{"count":10,"href":"https:\/\/www.dagtva.com\/index.php?rest_route=\/wp\/v2\/pages\/7563\/revisions"}],"predecessor-version":[{"id":11076,"href":"https:\/\/www.dagtva.com\/index.php?rest_route=\/wp\/v2\/pages\/7563\/revisions\/11076"}],"up":[{"embeddable":true,"href":"https:\/\/www.dagtva.com\/index.php?rest_route=\/wp\/v2\/pages\/7484"}],"wp:attachment":[{"href":"https:\/\/www.dagtva.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=7563"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}