European banks still booking profits in tax havens, says report

Top banks in Europe continue to use tax havens to book chunks of profits, a trend that has changed little since 2014 despite country-by-country disclosures becoming mandatory, the EU Tax Observatory said in a report on Monday.

The independent research body, co-financed by the European Union, said disclosures from 36 major European banks showed they booked a total of €20 billion ($23.77 billion) or about 14 per cent of total profits, in tax havens, even though few were employed there.

According to The Gu­ardi­an, banks said to enjoy a particularly low effective tax rate on their profits, of less than 15 per cent, include Barclays, HSBC and NatWest — which changed its name from Royal Bank of Scotland last year. The effective tax rate is calculated as the ratio between aggregated tax paid and profit posted, across all jurisdictions.

A spokesperson for HSBC told The Guardian that the bank did “not employ tax avoidance strategies, including those designed to artificially divert profits to low-tax jurisdictions”. A spokesperson for Barclays said the bank was the fifth-largest UK taxpayer and paid taxes across the jurisdictions in which it operated.

Profits booked by banks in tax havens work out at around 238,000 per employee, compared with 65,000 euros in non-tax havens, the report said.

“This suggests that the profits booked in tax havens are primarily shifted out of other countries where service production occurs,” it added.

Taxes have become a sensitive issue, with cash-strapped governments plugging holes in the economy due to Covid seeking to agree on a common rate for taxing Big Tech, in particular. Country-by-country repo­rting to shed light on the inner workings of banks has failed to change behaviour despite the rise of tax issues on the public agenda, the report said.

“More ambitious initiatives — such as a global minimum tax with a 25 per cent rate — may be necessary to curb the use of tax havens by the banking sector.”

The EU Tax Observatory’s research further suggests the UK exchequer would be the biggest beneficiary if any global minimum tax rate were enforced on Europe’s banks, in part due to the size of the banks headquartered in that country.

Under a 15 per cent tax rate, the UK would have collected an extra €940 million a year in 2020 and €1.47 billion in 2019.

With inputs from The Guardian