Proposal for a Global Taxation System

 – DAGTVA truth table –

DAGTVA® – Distribution of MNE profits

Quote :  2.4. New and revised profit allocation rules (RBRge)

30. Against that background, the “Unified Approach” proposes the following three tier mechanism:

Amount B – Activities in market jurisdictions, and in particular distribution functions, would remain taxable (RBMbf) according to existing rules (e.g. transfer pricing under the arm’s length principle and permanent establishment allocation under Article 7) (RBMbp). However, given the large number of tax disputes related to distribution functions, the possibility of using fixed remunerations would be explored (RBMbo – RBMbr), reflecting an assumed baseline activity. Appropriate and negotiated fixed returns could provide certainty to both taxpayers and tax administrations, and reduce the dissatisfaction with the current transfer pricing rules (RBMbm).

First, it seems that we must be concerned for having a simple consensual basis to calculate the profit made before tackling what should be broken down between States as fixed remuneration. It would be necessarily an additional taxation and given the high level of taxation we seen today in what is already applied to MNEs, if we want to put a new tax right, we must remove one that exists. If this is not the case, the risk will be to see the MNEs pass on this new tax right on their selling prices, as we have seen when the GAFAs have done following the arbitrary taxation of certain countries, including France. It follows that it is the French companies and consumers who paid this GAFA tax and not the GAFAs themselves, with the main consequence to reduce to nil the revenues of this right tax.

This new right to tax would not be part of the DAGTVA process by default.

With logic the option « Amount B » is not retained by the DAGTVA tax system in the context of the research on a Global Tax System.

It could possibly be if we had the knowledge of the manner in which a transfer price could be defined simply and which would give the information allowing, by logical consequence, to define the taxation that would be applied to the transaction. This is what will be presented to you in by downloading the spreadsheet Microsoft ® Excel : egalisation_des_taxes.xls, in English from the tab file 6 ‘Transac-base EN – 6‘ with the explanatory comments pages that define how a transfer price could be calculated with the resulting taxation, both for the MNE and also in each State in cause in the transaction.

Likewise, we have seen that the « Amount B » option was not retained in the DAGTVA proposal and that this allocation of fixed remuneration was no longer justified following a better distribution of direct taxes in each of the States involved. in the transaction, but especially how to envisage this restitution if the two States are not aware of the amount to be processed. This is what was presented in the foreword with a timetable that will relegate this possible provision to the end of the talks when the States will know what it is possible to attribute!

It is also explained in detail in the section RBMac with some extracts below,

« The fact is, with DAGTVA, no new tax right on fixed remuneration contributes to the simplification of the hoped international tax system (related pages: RLSrl , PLSsy , RBAsm, RBAas , RBAps). »

This fixed compensation option based on sales could potentially be negotiated last when everything else will be in place, used and analyzed to learn from it.

If all goes well there would be nothing to negotiate in this area before several years!

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