The 20 biggest banks in the eurozone booked over a quarter of their 2015 profits in tax havens, with Luxembourg and Ireland the favourite destinations, a report by Oxfam said on Monday (27 March). EURACTIV France reports.
The EU’s fight against tax evasion is far from over. After a series of tax evasion scandals concerning European countries and companies in recent years, the NGO Oxfam on Monday published a damning report on the conduct of European banks.
Using data from country by country reporting, a transparency requirement recently established under EU law, the NGO put the activities of Europe’s 20 biggest banks under the microscope.
“New EU transparency rules give us a glimpse into the tax affairs of Europe’s biggest banks and it’s not a pretty sight,” said Manon Aubry, the head tax justice campaigner for Oxfam France and author of the report.
Oxfam’s findings reveal flagrant abuses. The banks analysed declare 26% of their profits in tax havens, but just 12% of their revenue and 7% of their employees.
For the NGO, this gap between real activity (number of employees and turnover) and declared profits is proof that the banks knowingly shift their profits to low taw jurisdictions.
“The 20 European banks declare €628 million in tax havens where they employ no staff and €383m of profits on which they pay not a single euro in tax,” the report stated.
The gap between banks’ real activities and their profits can sometimes reach incredible proportions. In the Cayman Islands for example, “for every €100 of revenue, there is an average of €167 profit”.
By shifting their profits to attractive tax jurisdictions, some of which even offer zero-rate deals, some European banks have managed to achieve negligible effective tax rates.
Barclays, the fifth largest bank in Europe, declared profits of €557m in Luxembourg, which Oxfam classifies as a tax haven, but only paid €1m in tax.
“The results of this report, some of which defy understanding, show the extent of the problem of the total impunity surrounding Europe’s largest banks in tax havens. The scandals keep on coming and still the banks do not seem to change their practices,” said Aubry.
Tax havens in the heart of Europe
The report focusses on European tax havens, like Ireland and Luxembourg, where five banks (RBS, Société Générale, UniCrédit, Santander and BBVA) manage to book profits higher than their revenues.
At €39m, Société Générale’s Ireland profits for 2015 were more than four times higher than its €9m revenue.
“While there may sometimes be reasons for high profits in some countries, these kinds of results indicate the potential shifting of profits to Ireland,” the report said.
Oxfam based its calculations on data available from country by country reporting, which obliges banks to publish a certain amount of information on their activities: the number of branches and the nature of their activities, turnover, staff, profits or losses before tax, the amount of tax paid and public subsidies received. This obligation was introduced in France in 2013, before being taken up at European level later the same year.
“It would have been impossible to shed light on the practices of European banks in tax havens without these new transparency obligations,” said Aubry.
Access to this new information has made it easier to check whether profits are really made in the jurisdiction where they are declared, and not shifted to optimise the company’s tax bill.
Country by country reporting requirements currently apply only to banks. An EU directive is being negotiated in the European Parliament, with the aim of extending the requirements to multinationals across all sectors.
But in France, an attempt to force multinationals to publish their tax bills was struck down by the Constitutional Court. The country’s top judges found that the transparency requirement undermined companies’ freedom to do business.
Non-existent tax havens black list
The definition of a tax haven varies from one country to another. In France, the list of non-cooperative territories offers rather meagre reading: in 2011 it contained 16 countries but had been pared down to just eight in 2016.
At European level, the creation of a common list of tax havens is currently being discussed. But the exercise is an almost impossible political balancing act, because no EU member state will figure on the list. Yet, there is no shortage of EU jurisdictions offering highly favourable rates for multinational businesses.
As a result, Oxfam did not rely on the official list of tax havens but instead compiled its own information from different sources, including the OECD and the European Parliament, ending up with a list of 31 countries.
An updated directive on the automatic exchange of information between national tax administrations received the green light from the EU’s 28 finance ministers.
So-called ‘country-by-country reporting’ between national tax authorities is opening a new era in tax transparency, backers said.
The 4th Directive on Administrative Cooperation (DAC4), adopted on 8 March 2016, will require multinationals to report, among other things, on their revenues, profits, taxes paid and number of employees in every country where they operate.
The Panama Papers exposed offshore companies used to avoid tax, and has embroiled figures including Vladimir Putin, Ukrainian President Petro Poroshenko, UK Prime Minister David Cameron, Icelandic Prime Minister Sigmundur Davíð Gunnlaugsson, and Climate Commissioner Miguel Arias Cañete.
It comes at a time when tax avoidance is high on the political agenda.
The fight against tax evasion is one of the Juncker Commission's main priorities. News of the systematic, state-sanctioned tax evasion practices of many multinationals based in Luxembourg, known as the Luxleaks scandal, broke shortly after the new Commission was sworn in.
On 18 March 2015, the executive presented a package of measures aimed at strengthening tax transparency, notably by introducing a system for the automatic exchange of information on tax rulings between member states.
>> Read EURACTIV's full coverage on: country by country reporting.
- Oxfam: Press release - Europe’s biggest banks register €25 billion profit in tax havens (27 March 2017)
- Oxfam: European banks tax report (27 March 2017)
- European Commission: Tax Transparency Package (March 2015)