The taxparency solution comes as a reaction to the recent high profile cases of tax evasion, such as the Starbucks case or the international consortium of investigative journalist revelations of hidden offshore accounts. At the same time, it responds to the current intolerable situation where neither the EU nor the member states check whether they are giving taxpayer money to conglomerates who shift profits to tax havens or are owned by 'anonymous' individuals.
The taxparent solution pursues a double objective. First, to put small and medium enterprises (SMEs) on a par with large conglomerates, something that is present in at least two member states. Today SMEs cannot escape corporate tax and in most countries their ultimate owners must be disclosed to the public. By contrast, multinational conglomerates can – in particular by extending their ownership structure to opaque tax havens – escape both. The taxparent solution would bar this loophole. Second, thanks to the corporate structure transparency, the taxparent solution intends to put conglomerates receiving public money or doing business in sensitive sectors under control.
"The taxparent solution expects that a 'reasonable' conglomerate – in order not to face any additional obligation – would abandon the use of aggressive tax schemes"
Under the taxparent solution, conglomerates can decide to be voluntarily taxparent and pay at least 11.25 per cent of their global profits in corporate tax – the so called global effective corporate tax ratio (GECTR). If they do so, they can get the 'taxparent mark' to enhance their public image. Yet, conglomerates may decide not to display their corporate structure and how much they pay in corporate tax globally to the public, but to tax authorities only. In such a case, those with a GECTR above 11.25 per cent would not face any further burdens. By contrast, those who would want to be under 11.25 per cent would have to bear additional burdens and risks: first to provide their corporate structure to authorities on a continuous basis and remain on their radar; second, for those with a GECTR below six per cent, there would be an additional obligation to disclose the real amount of this ratio to consumers.
The taxparent solution expects that a ‘reasonable’ conglomerate – in order not to face any additional obligation – would abandon the use of aggressive tax schemes and ensure it pays at least 11.25 per cent of its global profits in corporate tax which, in turn, would increase the corporate tax revenues of member states.
For companies who are receiving public money in any form or are active in certain sensitive sectors, the taxparent mark – entailing corporate transparency – would be obligatory in order to prevent corruption, conflicts of interest and money laundering, as well as security risks. The taxparent solution can also be used for targeted international sanctions: thanks to transparency, companies registered in the EU owned by nationals of third-countries subject to sanctions could be prevented from receiving public funds in the EU.
The taxparent solution should be given a chance because it is simple and smart. Instead of requiring companies to write hundreds of pages of reports about their corporate social responsibility which no one would read, multinational conglomerates could prove their responsibility by being transparent about where they pay their taxes and how much. I also tried to avoid the usual pitfalls, such as lack of consensus among member states on any tax harmonisation issues, by using the latest OECD behavioural studies and the concept of 'clever rules' as designed by Czech lawyer Ondrej Vondracek. Last but not least, by being politically neutral the taxparent solution can win support across the spectrum of parties.