George Town, Grand Cayman
Noel Hendrickson
According to a new report, Europe’s largest banks set aside an average of € 20 billion ($ 23.7 billion) in tax havens each year.
The analysis found that it accounts for 14% of its total profits.
Published on Monday, the EU Tax Observatory report examined the activities of 36 systemic European banks, based in 11 countries across Europe, which have been the subject of mandatory country-by-country reports on their actions since 2015.
Seventeen jurisdictions were included in the report’s list of tax havens: Bahamas, Bermuda, British Virgin Islands, Cayman Islands, Guernsey, Gibraltar, Hong Kong, Ireland, Isle of Man, Jersey, Kuwait, Luxembourg, Macau, Malta, Mauritius, Panama and Qatar.
The report noted that it was reported that approximately 65% of banks ’profits were earned abroad through affiliates between 2014 and 2020, with researchers documenting a misalignment between countries where they went record profits and those found by employees. According to the report, earnings per employee were also much higher in tax havens than in other countries, and subsidiaries in tax havens had high profitability and profitability margins.
The researchers also noted that 25% of bank profits were recorded in countries where the effective tax rate was less than 15%.
“Overall, this evidence indicates a significant presence and stable use of tax havens by European banks over the years,” the report said.
“The banking profitability of tax havens is abnormally high: 238,000 euros per employee, compared to 65,000 euros in non-refugee countries,” the authors added. “This suggests that profits recorded in tax havens are shifted primarily to other countries where the service takes place.”
Variation between banks
The use of tax havens varied considerably between banks, according to the analysis. The data showed the average percentage of profits recorded in tax havens between 2014 and 2020 around 20%, but ranged from 0% to 58%.
Several banks were identified by researchers as “relatively high in tax havens.”
“We look at several situations: for HSBC, most of the profits from paradise come from a single paradise [Hong Kong], while in other cases various tax havens are involved, “the report said.
HSBC recorded 58% of pre-tax profits in tax havens between 2014 and 2020, according to the study, making it the lender that channels the highest percentage of profits on EUTO’s list of tax havens.
“HSBC is the largest bank in Hong Kong, with nearly 30,000 employees, and because of our wealth, size of operations and strategy, a significant proportion of the group’s profits continue to emerge there,” he told CNBC a HSBC spokesperson by email. “HSBC does not use tax avoidance strategies to artificially divert profits to low-tax jurisdictions.”
According to the report, Standard Chartered recorded an average of one-third of its pre-tax profits in tax havens, while Deutsche Bank, Nord LB and RBS recorded, on average, more than 20% of their pre-tax profits. ‘tax havens between 2014 and 2020.
A Standard Chartered spokesman told CNBC that the bank has substantial business operations in both high-tax and low-tax jurisdictions.
“We are not artificially diverting profits to low-tax jurisdictions,” they said in a statement. “The tax is considered part of the relevant business decisions and we only participate in tax planning that supports genuine business activity. We do not conduct transactions whose sole purpose is to minimize or reduce the cost of taxation.”
Meanwhile, a Deutsche Bank spokesman told CNBC by email that the lender was represented by active subsidiaries and branches in nearly 60 countries.
“None of these countries is on the current list of countries and territories that do not cooperate in the EU for tax purposes. As a matter of principle, Deutsche Bank reports its profits to the countries in which they are generated, which means that the profits they also pay taxes in those countries, ”they said. “Depending on the type of business activity, there may be different levels of profit per employee. The effective tax rate of the Deutsche Bank Group in 2020 was 39%.”
At the other end of the scale, Bankia BFA, Erste, Nykredit Realkredit, Swedbank and Banco Sabadell did not record any of their profits in tax havens during the seven-year sample period.
Eight banks, including Intesa Sanpaolo and HSBC, increased their presence in tax havens during the sample period, according to EUTO. Seven lenders kept their presence in paradises stable, while 16 banks reduced the use of tax havens.
The average effective tax rate paid by banks in the EUTO sample was 20%, ranging from 10% to 30%. Seven banks, according to EUTO, “have a particularly low effective rate” of 15% or less: RBS, Barclays, Bayern LB, Nord LB, HSBC, KBC and Intesa Sanpaolo.
Spokesmen for Nord LB, RBS, Barclays, Bayern LB, KBC and Intesa Sanpaolo were not immediately available for comment when CNBC contacted them.
The average corporate tax rate in the EU was 20.79% in 2020, having decreased every year since 2014. Across Europe, the 2020 rate was 19.03%, and the rate of corporate tax on the continent also declined gradually since 2014 Rates vary from country to country.
Call to obtain a minimum tax rate
In July, 130 countries supported an OECD plan to reform international frameworks with the aim of ensuring that multinational companies pay a fair share of taxes wherever they operate. The reforms include plans for a minimum global rate of 15% for corporation tax, which according to the OECD would generate about $ 150 billion in additional global tax revenue each year.
EUTO researchers estimated that if this rate were imposed globally, European banks used in their analysis would have to pay between 3,000 and 5,000 million euros more in taxes each year. If the global minimum rate were raised to 21%, they would pay an additional 6 to 9 billion euros a year. With a minimum rate of 25% corporate tax, the 36 European banks included in the study would pay between 10 and 13 billion euros in additional taxes annually.