European banks set aside $ 24 billion in tax havens every year, report says

Europe’s largest banks reserve an average of 20 billion euros ($ 23.7 billion) each year in tax havens, according to a new report.

This represents 14% of their total profits, according to the analysis.

Released on Monday, the EU Tax Observatory’s report looked into the activities of 36 systemic European banks, headquartered in 11 European countries, which were subject to mandatory country-by-country reporting 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, Macao, Malta, Mauritius, Panama and Qatar.

The report noted that around 65% of bank profits were reported to be earned overseas through affiliates between 2014 and 2020, with researchers documenting a mismatch between countries where profits were recorded and those where were the employees. Profits per employee were also much higher in tax havens than in other countries, according to the report, with subsidiaries in tax havens reporting high profitability and profit margins.

The researchers also pointed out that 25% of bank profits are accounted for in countries where the effective tax rate is less than 15%.

“Taken together, this evidence points to a significant presence and stable use of tax havens by European banks over the years,” they said in the report.

“The profitability of banks in tax havens is abnormally high: 238,000 euros per employee, against around 65,000 euros in non-paradise countries”, add the authors. “This suggests that the profits recorded in tax havens are mainly transferred out of other countries where the production of services takes place.”

The use of tax havens varied considerably from bank to bank, according to the analysis. The average percentage of profits recorded in tax havens between 2014 and 2020 was around 20%, according to the data, but it ranged from 0% to 58%.

Several banks have been identified by the researchers as having a “relatively high presence in tax havens”.

“We observe a diversity of situations: for HSBC, the bulk of the benefits of safe-haven securities come from a single safe-haven investment. [Hong Kong], while in other cases multiple tax havens are involved, ”they said in the report.

HSBC recorded an average of 58% of its pre-tax profits in tax havens between 2014 and 2020, according to the study, making it the lender that channels the largest percentage of profits in the EUTO list of tax havens. .

“HSBC is the largest bank in Hong Kong, with approximately 30,000 employees, and due to our heritage, the size of our operations and our strategy, a significant proportion of the group’s profits continue to be generated there. an HSBC spokesperson told CNBC via email. “HSBC does not employ tax evasion strategies to artificially divert profits to low tax jurisdictions.”

Standard Chartered recorded on average around a third of its pre-tax profits in tax havens, according to the report, while Deutsche Bank, Nord LB and RBS all recorded, on average, more than 20% of their pre-tax profits in tax . paradise between 2014 and 2020.

A spokesperson for Standard Chartered told CNBC the bank has substantial business operations in high and low tax jurisdictions.

“We are not artificially diverting profits to low tax jurisdictions,” they said in a statement. “Taxation is considered to be part of relevant business decisions and we only engage in tax planning that supports genuine business activity. We do not enter into transactions the sole purpose of which is to minimize or reduce the tax cost. “

Meanwhile, a spokesperson for Deutsche Bank told CNBC by email that the lender is represented by affiliates and branches operating in nearly 60 countries.

“None of these countries are on the current EU list of non-cooperative countries and territories for tax purposes. In principle, Deutsche Bank declares its profits in the countries in which they are generated, this means that the profits are also taxed in these countries, ”they said.“ Depending on the type of business activity, there may be different levels of profit per employee. Deutsche Bank Group’s effective tax rate in 2020 was 39%. ”

At the other end of the scale, Bankia BFA, Erste, Nykredit Realkredit, Swedbank and Banco Sabadell did not register any of their profits in tax havens during the seven-year sampling period.

Eight banks, including Intesa Sanpaolo and HSBC, increased their presence in tax havens during the sample period, according to EUTO. Seven lenders maintained their presence in tax havens, while 16 banks reduced their use of tax havens.

The average effective tax rate paid by the banks in the EUTO sample was 20%, ranging from 10% to 30%. Seven banks, according to the EUTO, “have a particularly low effective tax 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 contacted by CNBC.

The average corporate tax rate in the EU was 20.79% in 2020, after decreasing every year since 2014. Across Europe, the rate for 2020 was 19.03% , the corporate tax rate on the continent also experiencing a gradual decrease since 2014 Rates vary according to European countries.

In July, 130 countries backed an OECD plan to reform international frameworks to ensure multinational companies pay a fair share of tax wherever they operate. The reforms include plans for a 15% overall minimum corporate tax rate, which the OECD estimates would generate around $ 150 billion in additional global tax revenue each year.

The EUTO researchers calculated that if this rate were imposed globally, the European banks used in its analysis would have to pay 3 to 5 billion euros more in taxes each year. If the overall minimum rate were raised to 21%, they would pay an additional 6 to 9 billion euros per year. With a minimum corporate tax rate of 25%, the 36 European banks included in the study would pay 10 to 13 billion euros in additional taxes per year.