TRANSPARENT – confirms that the company made all its corporate ownership structure public up to ultimate beneficial owners.
28% – show that the global effective corporate tax rate of the multinational corporation of which the company is a part is 28% (i.e. average of effective tax rate of all companies within the multinational corporation controlled by the displayed ultimate beneficial owners paid in all states where it is present (which allows to reveal piling up of profits in offshore tax havens with low or zero tax rate)).
★★★ – indicate that the sum of amounts paid in corporate tax in all EU countries where the multinational corporation of which the company is a part is present is between EUR 100K – 999K (three figures before K (thousand) equal three stars).
06/16 – marks the validity of the TAXPARENT mark (up to June 2016)
© – attests that the TAXPARENT mark was obtained on the basis of proper certification via the taxparent web-application.
What’s the key problem in the Western Europe? Corporate tax avoidance. What’s the key problem in the Eastern Europe? Corruption. What’s the common cause of both of these problems? Opacity of corporate ownership structures, including the anonymity of ultimate beneficial owners of such entities, as well as the ensuing hidden tax planning schemes of such corporations.
If one creates a sufficiently complex and partly "invisible" corporate ownership structure, one can hide untaxed profits and money channelled out of public budgets in subsidiaries in the invisible part of this structure. By creating such corporate ownership structure one can make it impossible to prosecute financing of criminality with public funds, go easily around international sanctions or state capture of market of public funds etc.
The solution to the problem of corruption resulting from the opacity of corporate structures is the disclosure of corporate ownership structures. The solution to the problem of corporate tax avoidance is the disclosure of corporate ownership structures accompanied by the disclosure of effective corporate tax rates. The disclosure solution is recommended both by the OECD and academics.
Corporations which voluntarily disclose corporate ownership structures and effective corporate tax rates are not dangerous. We know who owns them and controls them. We also know how much tax they pay and where so we know they are not avoiding corporate tax. By contrast, if the corporate structure is unknown, it is currently impossible to find the owner and convict him if bribes are included in the public contract price and then channelled to the ultimate owner through dividends or other means of corporate tax shifting. UK research and conclusions of international organisations confirmed that “there is a clear link between such illicit financial flows and company structures”.
In 2013, UK Prime Minister David Cameron proposed obligatory disclosure of corporate ownership structures and the effective corporate tax rates. Following the approval of his proposals at the G-8 summit in Lough Erne, in 2014 OECD started to work on the “Base Erosion – Profit Shifting“ project. This project is currently on-going and is supposed to deliver recommendations to OECD Member States how to deal with corporate tax avoidance.
At the EU level, in 2014 the Parliament, Council and the Commission reached an informal agreement on the creation of the public register of ultimate beneficial owners. Under the Accounting Directive the Commission shall report by 21 July 2018 about the practices regarding the publication by companies of country-by-country reports on at least the profits made and tax on profits paid. In February 2015, the U.S. President Obama proposed a one-off tax on offshore corporate profits of U.S. companies.
At the same time, voluntary initiatives of NGOs and small businesses, such as the UK’s FAIR TAX mark initiative, supposed to reward non-avoiding companies with transparent ownership structures have started to appear. The idea of a tax-label was also advanced as one of the possible solutions by the Secretary-General of CESI.
The OECD BEPS initiative will deliver recommendations on the country-by-country reports and better communication between tax authorities, but it will take quite some time before they start to be applied. Moreover, they will not be binding and will not provide states and companies with concrete tools how to disclose corporate structures and effective tax rates as well as their character will be prescriptive rather than motivational. Since circumvention is in the heart of tax avoidance, hard rules will never be able to prevent it.
The voluntary initiatives, although motivational and immediately applicable, lack clear message about transparency and effective tax rate which could be understandable to consumers. While sharing the philosophy and the objectives of the Fair Tax mark concept, TAXPARENT solution is much more practical: it translates corporate ownership structure and effective tax rate into an easily understandable TAXPARENT mark.
