Restoring the Tax Base
Through profit shifting, tax evasion, and tax avoidance, corporations and high-net-worth individuals conceal significant parts of their income and wealth. This impairs the tax base and inhibits the capacity of states to levy fair and effective taxes. Though recognised before COVID, this problem has become more urgent in the context of the pandemic. When public health requires shared sacrifice and all parts of society must assume fiscal responsibility, clear visibility of and access to the full tax base is essential for good public policy.
A number of administrative measures could be taken to this end, including:
- implementing the Common Consolidated Corporate Tax Base in Europe, to achieve clarity on the profits and income streams that are eligible for taxation;
- creating a European beneficial ownership registry, to prevent strategies of separating access from ownership; and,
- a critical, fiscal-monetary coordinated investigation into the nexus of tax planning and offshore money creation in Luxemburg and other inner-European tax havens.
Further, since both law and accounting frameworks are always incomplete and evolving, finance ministries in general and tax collection agencies in particular could be more adequately staffed, and regulation could be introduced to stop the aggressive creation and marketing of tax-optimisation schemes.
Finally, a structured, dual-track process could be introduced for periodic reviews of the tax base, for example once a decade: one track, led by civil servants, would screen the tax base for erosion and concealment, potentially building on the OECD’s Base Erosion and Profit Shifting (BEPS) process. A second track, led by a specially convened citizens’ assembly and advised by a strengthened financial civil service, would deliberate over taxes and tax rates and possibly propose changes.
Implementing this proposal would be beneficial for a range of other proposals listed in this document: it would provide the informational and administrative infrastructure for Fair and Effective Wealth Taxation; it would support fiscal-monetary cooperation by allowing for better, more targeted use of fiscal policy to slow down inflation or to prevent deflation; and it could facilitate Reducing Leverage by rendering corporate balance sheets more transparent and, hence, more open to regulation.
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