Posted on Sep 08, 2021
A new report by the EU Tax Observatory shows how European banks allegedly book part of their profits in tax havens to avoid paying taxes.
It says 20 billion euros, or 14 percent of the banks' total profits, are booked in tax havens per year. These figures have remained constant between 2014 and 2020. According to the research team of the Tax Observatory, the effective tax rate in tax havens was between 10 and 13 percent.
Most suspiciously, the 36 European banks analysed booked €238,000 in profits per employee in tax havens, but only €65,000 in countries with higher tax rates. These huge differences in productivity cannot be explained and suggest that banks shifted profits to actively avoid taxes.
This example also shows the need for effective minimum taxation: with a minimum tax rate of 15%, the 36 European banks would have to pay 3-5 billion euros in additional taxes. With a minimum tax rate of 21%, the additional tax revenue for EU countries would be €6 to 9 billion.
The data on which the European Tax Observatory's report is publicly available thanks to a European Directive from 2013. The Fourth Capital Requirements Directive stipulates that banks operating in the EU must disclose their annual turnover, profit, taxes paid and public subsidies received, as well as the number of their employees, by country.
German Greens MEP Sven Giegold said, "At the time, we Greens proposed and secured the inclusion of this obligation in the directive. This report shows how important this obligation for greater tax transparency is. Because it gives us indications of how much tax revenue is lost and in which countries.
"The list of tax havens also includes the EU member states Ireland, Luxembourg and Malta, along with the Bahamas, the Cayman Islands, Guernsey, etc. So-called public country-by-country reporting is therefore a effective measure against tax avoidance, because it means that companies can no longer hide how they avoid making their contribution to society. Other countries are also less and less able to hide the sums they deprive their neighbours of by cutting their corporate taxes in order to generate tax revenue at the expense of others.
"On 1 June this year, the Commission, the European Parliament and the Council agreed on a legal text to this effect. In contrast to the banks, tax transparency for large companies will only be obligatory within the European Union for the time being. However, about 80% of the lost tax revenues in the EU can be traced back to intra-European tax havens, this is a considerable step forward which we were able to push through against the bitter resistance of the Council," he said.
"The example of Deutsche Bank can be used to show concretely how a bank can avoid a particularly large amount of corporate tax with the help of tax havens: at 27%, it has the fourth highest percentage of mean profits booked in tax havens.
"According to the European Tax Observatory’s report, Deutsche Bank books on average 22% of its total profits in Luxembourg, where they are taxed at an effective rate of 14%. However, the number of employees in Luxembourg corresponds to less than 1% of all employees worldwide. For Germany, it is the other way round: Deutsche Bank books 34% of its profits there, but more than 50% of its employees work in Germany.
"These figures leave strong doubts about Deutsche Bank's contribution to the common good. In order to be able to defend itself against tax dumping from other countries, an effective minimum tax rate in the form of an additional taxation is therefore so important: because then Germany could claim the difference between the minimum tax rate and the taxes paid in Luxembourg from Deutsche Bank, thus making Luxembourg's tax model useless.
"The extent to which the independent work of the European Fiscal Observatory is a thorn in the side of the Christian Democrats in the European Parliament was demonstrated in the recent vote.
"Last Wednesday, 1 September, the Group voted unanimously against a joint motion by Social Democrats, Liberals and us Greens to secure the Observatory's budget for 2022. The displeasure of the Christian Democrats about uncomfortable research did not have an effect on the budget: The cross-party amendment was adopted and Professor Zucman's team will be able to continue its excellent work next year. It is important to know that the observatory was originally an idea of the Greens, which we launched together with Social Democrats and Liberals in the European Parliament in October 2019. We will keep working on this important cause," concluded the MEP.
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