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European banks still love tax havens




EUROPE. A study by the European Tax Observatory (EUTAX Observatory) shows that European banks continue to earn a significant proportion of their profits in tax havens*. 

Released on Monday 6 September 2021, it also calculates the effective tax rate and tax deficit of thirty-six banks in eleven European countries, i.e. the difference between what banks currently pay in taxes and what they would pay if they were subject to a minimum effective tax rate in each country. 20bn of profits were made by the sample in tax havens, on average 14% of their total profits. This percentage has remained stable since 2014, but the rate varies enormously from one bank to another, with ratios ranging from 0 to 58%.

The organisation hosted by the Paris School of Economics thus reveals that, over the period 2014-2020, productivity in tax havens is abnormally high (see graph below). It reaches €238,000 per employee, compared to €65,000 in the others (€63,000 in non-haven countries and €68,000k in the domestic market). "This suggests that profits booked in tax havens are mainly transferred from other countries where the production of services takes place," the report says. Similarly, profit margins in tax havens amount to 52-58% compared to 20-35% in other countries.

 

Monte Dei Paschi makes almost 50% of its profits in tax havens

Profitability per employee increases significantly between profits made in tax havens and non-tax havens (chart: EUTAX Observatory)
Profitability per employee increases significantly between profits made in tax havens and non-tax havens (chart: EUTAX Observatory)

While the OECD (Organisation for Economic Co-operation and Development) advocates a minimum tax rate on multinationals' profits to combat this situation, the effective tax rate in tax havens is currently between 10 and 13% (compared to 20% globally for all sources). "With a minimum tax rate of 15%, our sample of European banks would have to pay €3 to €5 billion in additional taxes per year," says the European Tax Observatory. With a rate of 21%, the sum would be between €6 and €9bn and between €10 and €13bn with 25%.

The main countries singled out are the UK, France and Italy. And the main banks, the British HSBC with 62.3% of its pre-tax profits booked in tax havens between 2018 and 2020. It is ahead of Italy's Monte dei Paschi (49.8%) and the UK's Standard Chartered (29.8%). It should be noted that Monte dei Paschi recorded the highest increase (30.3% of profits over the period 2014 to 2016) ahead of its compatriot Intesa Sanpaolo, which rose from 12.5% between 2014 and 2016 to 24.6% between 2018 and 2020.
In France, Société Générale leads with 13.8% of its profits made in tax havens between 2018 and 2020, followed by Crédit Agricole (11.5%) and BNP Paribas (6.9%).
Among the banks in southern European countries, the most virtuous in this respect are the Spanish Banco Santander (1.3%) and BBVA (1.9%) as well as the French Crédit Mutuel (1.8%) and BPCE (2.0%).

"Despite the growing importance of these issues in the public debate and in the political world, European banks have not significantly reduced their use of tax havens since 2014," the study notes.

* The European Tax Observatory lists 17 jurisdictions as tax havens according to its criteria: Bahamas, Bermuda, British Virgin Islands, Cayman Islands, Guernsey, Gibraltar, Hong Kong, Ireland, Isle of Man, Jersey, Kuwait, Luxembourg, Macao, Malta, Mauritius, Panama and Qatar.

Read the full report

Eric Apim


Tuesday, September 7th 2021



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