The main European banks register 14% of their profits in tax havens. This is confirmed by a recent EUTAX report, the recently created EU Tax Observatory, located at the Paris School of Economics and funded by the European Union. Titled Have European banks abandoned tax havens? Country-by-country data evidence, The analysis is carried out by Giulia Aliprandi, Mona Baraké and Paul-Emmanuel Chouc and focuses on 36 systemic European banks – including the Spanish Santander, Sabadell, BBVA, Bankia -, obliged to publish country-by-country data on their activities since 2015 – how corporate profits are distributed by country.
The report assembles a list of tax haven jurisdictions used by the banking sector: a country is identified as a tax haven when it combines an effective tax rate on bank profits of 15% or less (which, in tax havens, is usually between the 10% and 13%), and a very high rate of return per employee.
On average, annual benefits in tax havens are around 238,000 euros per employee, compared to 65,000 euros in other European countries, which suggests that a large part of the benefits recorded in tax havens are transferred from countries where services are provided and there are most of the staff.
The list includes 17 jurisdictions: Bahamas, Bermuda, British Virgin Islands, Cayman Islands, Guernsey, Gibraltar, Hong Kong, Ireland, Isle of Man, Jersey, Kuwait, Luxembourg, Macao, Malta, Mauritius, Panama and Qatar.
“Constant presence since 2014”
The author Mona Baraké underlines: “The analysis of these data has established that about 20,000 million euros, or 14% of the total profits of the 36 banks, are located in these tax havens. A situation that has hardly changed during the period studied “.
However, the use of tax havens varies from one bank to another, ranging from 0% –Sabadell and Bankia, among others– to a maximum of 58% HSBC and Monte dei Paschi, for example–.
Thus, the average percentage of profits recorded in tax havens per bank is around 20% and, although the services present in tax havens remains constant, the study shows a decrease in the number of subsidiaries of banks in havens prosecutors since 2014.
Using data by country, the researchers calculate the effective tax rate and the tax gap for the banks in the sample. That is, the difference between what they pay in taxes and what they would pay if they were subject to a minimum effective tax rate in each country.
The professors calculated what banks would have to pay if the international tax reform that is currently being negotiated within the Organization for Economic Cooperation and Development (OECD) were applied.
With this reform, which provides for the introduction of a global minimum corporate tax of 15%, “the 11 countries that host the parent companies of these 36 banks would recover between 3,000 and 5,000 million euros per year, between 6,000 and 9,000 million euros. euros if the rate were increased to 21%, and up to 10,000 million or 13,000 million with a rate of 25% “, explained Giulia Aliprandi and Paul-Emmanuel Chouc.
The main countries that would benefit from this would be the UK and France. If the minimum tax rate of 15% is maintained, it would represent between 800 and 1.5 billion euros of additional taxes per year for the United Kingdom, that is, between 23% and 36% of the corporate taxes paid to the United Kingdom by the 36 banks analyzed. For France, that would represent between € 350 million and € 500 million in additional taxes per year, that is, between 4% and 9% of corporate taxes paid by banks to France.
Tax revenue would increase for other EU countries, such as Italy, Germany and Spain, but to a lesser extent.
Evolution of presence in paradises
The study shows that 16 banks in the sample reduced their presence in tax havens during the 2016-2020 period by an average of 7 percentage points. Despite the decline in profits recorded in tax havens, the presence remains high in several banks.
For banks that decreased their presence, keep in mind that most of the decreases were small, in single-digit percentages. Deutsche Bank continued to recognize an average 21% of gains in tax havens between 2014 and 2020, Standard Chartered almost 30% and Société Générale around 14%, all of them with very small decreases during this period.
On the contrary, there are eight banks with a greater presence of tax havens during this period, increasing by 6 percentage points on average. Some notable increases occurred in the case of HSBC and Barclays, where the presence in tax havens was already high, while other banks had a relatively low presence in tax havens and the increase is relatively small (0.7-2 percentage points of increase).
Finally, seven banks with little presence in tax havens maintained a stable percentage with a variation of less than 0.5 percentage points. However, of those banks with a stable percentage, Nord LB recorded a high presence of around 27% of profits during this period.
The study defends the need for country-by-country reports, although the degree of transparency required of banks today does not allow for the visibility of assets or deposits on a national scale, which weakens the identification of tax planning behavior.
“The fact that European banks have not significantly reduced their recourse to tax havens since 2014, despite the growing importance of these issues in public debate and in the political world, leads to advocacy for the implementation of more ambitious initiatives. , as a global minimum tax of 25%, “say the authors.
The EU Tax Observatory, co-financed by the EU, is an independent research laboratory that conducts and disseminates studies on taxation. Its publications do not reflect the views of the European Commission.