About DBCFT

When I read Santiago Diaz de Sarralde’ s last post, which deals with the proposal of taxing the destination-based cash flow with border adjustment, which would replace the corporation tax, I imagined that it would receive many readings, and, above all, many comments. The issue, in my opinion, would generate reactions ranging from the astonishment at the level of change challenging the status quo, to the uncertainty of those who simply wonder what this conversation is about and why so much fuss; with in between the skepticism of those who think that that will not happen, or the enthusiasm of those who think that, on the contrary, not only it will happen, but the sequence of countries that will follow this model will be like a cascade.

While I am writing this article, the mentioned post has already many readings, has been sent as a link in several emails and widely shared in social networks, but the comments have shined by their absence. I do not think this absence corresponds to a lack of interest, much less. I think it responds to the logical need to first understand the magnitude of the change before beginning any analysis of the implications, particularly in the more competing environment, that of management.

A little to stimulate that dialogue to which Santiago summons us, here are some specific questions for him:

• What would be the implications for the tax administration in the event that a country adopts the DBCFT, and the other countries, in particular those with whom it has commercial relations, do adopt it?
• What are the implications if your country does not adopt the DBCFT but one of its major trading partners adopt it? Does the risk of BEPS increase, to lose the local base?
• If the country adopting the DBCFT already has VAT, it is more convenient to implement it with an increase in the VAT rate, reduction of exemptions and incorporation to the base wages, or it is more convenient to leave the VAT separated and for practical purposes, have a kind of second consumption tax. In this second case, would it be implied that one of them follows the criterion of cash and the other of the accrual?
• Would this decision affect the national compulsory electronic billing systems in place, as it is already the case in several Latin American countries? For a tax administration that already has in its possession the electronic documents that record the transactions of “receipts” with invoices issued (including those destined for export) and “payments” made for the internal purchases of goods (including capital goods) and services. To that could be added the relative ease to incorporate the elements associated to the payments for imports even if the customs is not integrated, and the corresponding expenses for wages, in many cases already existent via summary information or in some case also by way of electronic documents similar to electronic invoices. All this information would allow to know the tax base with relative precision.
• How would they relate to the quasi-business activities of individuals, de facto societies, and other similar concepts? Should a taxable minimum be set and, if so, how would the trend towards fiscal dwarfism be avoided?
• In the case of countries with resources associated with extractive industries, would it be compatible to implement the DBCFT in a general way, but implementing something specific to ensure the revenues from these activities?
• What additional issues should be addressed in countries where the corporate income tax is significantly higher than the individual income tax in terms of collection?

These are just some of the topics that will trigger interest.

Greetings.

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