Analysts support increased transparency to fight tax havens

Responsible corporations paying their taxes and revealing their ownership structure could be a possible solution in the fight of Europe against tax evasion and tax havens which cost billions of euro annually. EurActiv Czech Republic reports.

“We should step up our efforts to combat tax evasion and tax fraud”, Jean-Claude Juncker told the European Parliament last July. The next moment MEPs confirmed him as European Commission President. Some of them would probably like to change their decision today, as after the “Luxleaks’ scandal, the situation looks different.

The scandal erupted on 5 November, when the International Consortium of Investigative Journalists (ICJ) published articles based on a review of nearly 28,000 pages of confidential documents revealing that more than 300 international companies appear to have channelled hundreds of billions of dollars through the Luxembourg banks. They saved billions of euros in taxes.

As Juncker promised to respond to the problem, a wider discussion about tax is looming. “The solutions to the scandal of tax dodging have been apparent for some time. We need binding regulation that closes loopholes and create transparency,” Christian Hallum, senior policy analyst at the European Network of Debt and Development (Eurodad), told EurActiv Czech Republic.

“We all have a right to know how much tax companies pay to EU governments,” said Carl Dolan, head of Transparency International´s EU office in Brussels. “EU Ministers must now take action to end the secrecy of corporate tax deals in Europe. The Luxleaks deals could not have been kept secret if all companies were required to report details of their tax payments in every country where they operate,” he said.

Aimed at corporations

The call for effective solution of tax evasion in the EU is not new in itself. The Commission has presented some initiatives in the past for a common consolidated corporate tax base (CCCTB), nevertheless the proposal is still pending as member states are dragging their feet. Other initiatives on tax are also in the deep freeze.

“Since nearly eight years I am the rapporteur for the tax agreement of the EU with Liechtenstein concerning mutual cooperation concerning tax fraud. Luxembourg and Austria were against. Nothing moved since as it requires unanimity,” German MEP and Chair of Committee on Budgetary Control Ingeborg Grässle told EurActiv Czech Republic.

One possible solution with the ambition to motivate corporations to be responsible in paying taxes is offered by a group of Czech lawyers led by Ondřej Vondráček and Czech MEP Tomáš Zdechovský (EPP). They call it a “taxparent” solution (“Taxparency”). “It is aimed at the corporations which are lowering their tax obligations to the very minimum by shifting profits outside the EU to non-transparent tax havens. Therefore the EU budget is deprived of up to €300 billion annually,” Zdechovský explains.

Under the proposed solution, a conglomerate present in at least two EU member states could decide to pay at least 11.25% of its global profit in corporate tax and make its corporate ownership structure public on its website. In such a case, it would get the “taxparent mark” to boost its public image.

Corporations paying under 11.25 % would have to face increased information obligations and would get under scrutiny of tax authorities.

“Taxparent solution does not lead either directly or indirectly, actually or potentially to the harmonisation of corporate tax rates in the EU,” Vondráček stressed.

Zdechovský believes the taxparent solution can get support from across the political spectrum, because it is simple and politically neutral. “We already presented it to the President of the European Commission, Mr. Juncker. According to my information he liked it,” Zdechovský says.

Chance to fight harder

“It looks like a very interesting initiative,” Max Heywood, Regional Co-Ordinator for the Americas at Transparency International, told EurActiv Czech Republic. However, he warns that voluntary standards and agreements are not usually sufficient by themselves to generate meaningful improvements in transparency. “It is effective legislation that creates real pressure for change,” he said. “Where leading companies do decide to voluntarily increase their levels of transparency this can also have a very positive peer pressure effect.”

Christian Hallum from Eurodad welcomes all the voices trying to come up with innovative solutions. He is worried that the Taxparent solution might lead to a race to the bottom on corporate taxes. “We also stress the need for transnational corporations to pay the tax that they are supposed to, and to prevent a situation where they can decide on their own tax rates,” he wrote EurActiv.cz.

According to Czech MEP Luděk Niedermayer (EPP) who is a member of Committee on Economic and Monetary Affairs (ECON), the proposed solution based on fair tax paying could be involved in Corporate Social Responsibility. “The question to what extent the corporate management can maximise the profit of shareholders and try to be ´socially responsible´ is not the easy one. It is up to G20 and the EU to change the rules,” he said.

According to another member of the ECON, German MEP Michael Theurer (ALDE), the Taxparency solution belongs among possible approaches which should be considered. “It is very clear that the EU and EU member states need a joint systematic approach,” he thinks. ALDE has already put forward the proposal of creating a Special Committee on Tax Avoidance, Tax Evasion and Tax Fraud in the European Parliament to deal with it, he stressed.

“We cannot allow tax havens in the EU, and certainly what happened is a chance to fight harder if possible against such practices,” Spanish MEP Pablo Zalba Bidegain, another member of ECON, told the web page. “In my opinion, we should now look at the future and the possibility to create an expert group to look for different solutions in favour of the European economy as a whole.”

“I am not in favour of flat rate taxes. This is a way for new member states to help them being attractive (and calculable) for companies. Nothing against… But in Germany a company has to pay more than 11.25 %. Our Treasury system makes sure that they pay – and pay more. The first thing needed is as well working tax authority,” German MEP Ingeborg Grässle said.