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4th Dec 2023

Global 'billionaires tax' could raise €236bn, report finds

  • Until 2015, the equivalent of nine percent of global GDP was held untaxed in tax havens. This has now fallen to between three and four percent (Photo: Unsplash)
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Billionaires pay far less tax than ordinary citizens relative to their income, and in many countries use personal holding companies to avoid income tax at the "border of legality" — but no serious effort has been made to address the situation, says a new report by the EU Tax Observatory.

So far, effective tax rates on the wealth of the world's richest have remained very low [at 0-0.5 percent].

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In some EU member states, such as France, it is close to zero percent. This is partly because, in many countries, personal wealth-holding companies have fallen outside the most effective tools used to combat tax avoidance, say the authors of the Global Tax Evasion report.

"Tax evasion, wealth concealment, profit-shifting to tax havens are not laws of nature. They are the results of policy choices or of the failure to make certain choices," Gabriel Zucman, co-author of the report, said.

On this basis, the Paris-based EU-funded research lab proposes a global minimum two percent annual tax levied on the wealth rather than income of the world's 2,756 richest people, which could raise $250bn (€236bn).

"So many people struggle to make ends meet yet pay the taxes their governments ask of them. We need to make sure those at the top of the income ladder who certainly have the financial means don't wriggle out of them," Nobel prize-winning economist Joseph Stiglitz commented on the report.

The fight against tax evasion is becoming increasingly important in a context of high public debt following the Covid-19 pandemic and the investments that climate change will require — to name just two of the challenges ahead.

"This is the logical next step after the global minimum tax on multinational companies — which demonstrates that it is possible for countries to agree on minimum tax rates," Zucman added.

Overall, tax evasion by the rich has not declined, but offshore tax evasion by individuals has fallen since 2016 due to the end of bank secrecy. Over the past 10 years, it has decreased by a factor of about three, following the automatic exchange of banking information between countries.

Until 2015, the equivalent of nine percent of global GDP was held untaxed in tax havens. This has now fallen to between three and four percent, although there is still room for improvement, the report notes.

The same goes for the 15 percent global minimum tax on multinationals, agreed by 140 countries in 2021, to curb profit-shifting to tax havens.

At the time, it was estimated that it would increase overall corporate tax revenues by around 10 percent. However, a number of "loopholes" have reduced the expected revenue by as much as a factor of three.

The report recommends the elimination of those loopholes that encourage international tax competition, and the reopening of international negotiations on the minimum tax for large companies, with a view to raising it to 25 percent.

'Toothless' EU tax-havens list

In 2022, one trillion dollars in profits were shifted to tax havens, meaning that multinationals made profits in relatively low-tax countries where there is no real activity of that magnitude.

About 35 percent of profits shifted to tax havens come from the EU, according to the Atlas of the Offshore World.

European finance ministers have just reviewed and updated the EU's list of tax havens, which aims to promote good tax governance worldwide.

There are now 16 jurisdictions on the blacklist, as Antigua and Barbuda, Belize, and the Seychelles have been added, and the British Virgin Islands, Costa Rica, and the Marshall Islands have been removed.

"The list is toothless," Oxfam tax expert Chiara Putaturo commented after the publication. "It leaves off the hook zero-tax countries like the British Virgin Islands and fails to screen countries like the US and the UK along with EU tax havens like Luxembourg and Malta".

The blacklist is updated twice a year by the council. It already included countries such as Russia, Bahamas, Palau, Fiji or Panama, which are not cooperating with the EU or have not fully met their commitments to implement the necessary reforms.

"It's an insult to ordinary people struggling with soaring bills while the super-rich and profit-hungry multinationals get a free pass to escape their tax obligations," Putaturo commented.

In 2021 and 2022, 722 mega-corporations made $1 trillion a year in windfall profits, according to a recent analysis conducted by the NGO.

In contrast, one billion workers in 50 countries took a $746bn real-term pay cut last year.

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