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Europe’s biggest banks register €25 billion profit in tax havens

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Europe’s 20 biggest banks are registering over a quarter of their profits in tax havens – well out of proportion to the level of real economic activity that occurs there, according to a new report by Oxfam and the Fair Finance Guide International today.

The report, ‘Opening the Vaults,’ suggests the discrepancy may have arisen because some banks are using tax havens to avoid paying their fair share of tax, to facilitate tax dodging for their clients, or to circumvent regulations and legal requirements.

The research was made possible by new EU transparency rules that require European banks to publish information on the profits they make and the tax they pay in every country they operate. The report finds:

  • Tax havens account for 26 percent of the profits made by the 20 biggest European banks – an estimated €25 billion – but only 12 percent of banks’ turnover and 7 percent of the banks’ employees.
  • Subsidiaries in tax havens are on average twice as lucrative for banks as those elsewhere.  For every €100 of activity, banks make €42 of profit in tax havens compared to a global average of €19.
  • Bank employees in tax havens appear to be 4 times more productive than the average bank employee – generating an average profit of €171,000 per year compared to just €45,000 a year for an average employee.
  • In 2015 European banks posted at least €628 million in profits in tax havens where they employ nobody. For example, the French bank BNP Paribas made €134 million tax free profit in the Cayman Islands despite having no staff based there.
  • Some banks are reporting profits in tax havens while reporting losses elsewhere. For example, Germany’s Deutsche Bank registered low profits or losses in many major markets in 2015 while booking almost €2 billion in profits in tax havens.
  • Luxembourg and Ireland are the most favoured tax havens, accounting for 29 percent of the profits banks posted in tax havens in 2015. The 20 biggest banks posted €4.9 billion of profits in the tiny tax haven of Luxembourg in 2015 – more than they did in the UK, Sweden and Germany combined.
  • Banks often pay little or no tax on the profits they post in tax havens. European banks paid no tax on €383 million of profit they posted in seven tax havens in 2015.  In Ireland, European banks paid an effective tax rate of no more than 6 percent – half the statutory rate – with three banks (Barclays, RBS and Crédit Agricole) paying no more than 2 percent.

Manon Aubry, Oxfam’s Senior Tax Justice Advocacy Officer said: “New EU transparency rules give us a glimpse into the tax affairs of Europe’s biggest banks and it’s not a pretty sight. Governments must change the rules to prevent banks and other big businesses using tax havens to dodge taxes or help their clients dodge taxes.”

The report, ‘Opening the vaults: the use of tax havens by Europe’s biggest banks,’ a summary of the data on each of the 20 banks, a methodology document, and the complete data set on which Oxfam based its calculations is available here.

The 20 European banks assessed by Oxfam include: HSBC, Barclays, RBS, Lloyds and Standard Charter (UK); BNP Paribas, Crédit Agricole, Société Générale, BPCE, and Crédit Mutuel-CIC headquartered (France); Deutsche Bank, Commerzbank AG, and IPEX (Germany); ING Group and Rabobank (Netherlands); UniCredit and Intesa Sanpaolo (Italy), Santander and BBVA (Spain); and Nordea (Sweden).

“All companies and individuals have a responsibly to pay their fair share of tax. Tax dodging deprives countries throughout Europe and the developing world of the money they need to pay for doctors, teachers and care workers,” said Aubry.

Many countries are being cheated out of the money needed to tackle poverty and inequality by corporate tax dodgers, with poor countries being hit the hardest.  Tax dodging by multinational companies costs poor countries over €90 billion every year. This is enough money to provide an education for the 124 million children who aren’t in school and fund healthcare interventions that could prevent the deaths of at least six million children.

Transparency measures, such as the EU rules on public country-by-country reporting, are vital tools in the global fight against tax dodging. However, a new European Commission proposal designed to extend public reporting beyond the banking sector is flawed. The proposal is limited to companies with a turnover of €750 million or more, a measure that would exclude up to 90 percent of multinationals, and does not require companies to report on their activities in all the countries they operate – including developing countries.

“The EU’s transparency rules are starting to open up the often murky world of corporate taxation to public scrutiny.  These rules must now be extended to ensure all large corporations provide financial reports for every country where they operate. This will make it easier for all countries – including the poorest – to establish if companies are paying their fair share of tax or not,” said Aubry.