European banks are still active in tax havens

Despite several scandals related to taxation of multinational companies, European banks have not reduced their presence in tax havens in recent years, according to a study published on Monday. But they defend themselves by claiming that their profits are declared in the countries in which they are manufactured.

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Major European banks record 20 billion euros each year, or 14% of their total profits, in 17 particularly favorable tax regions, according to the European Tax Observatory, an independent research office based at the Ecole d’Economics in Paris. This percentage has held steady since 2014, despite several scandals that exposed questionable tax evasion practices by multinational corporations.

This body is funded by the European Commission and led by the French economist Gabriel Zucman, who specializes in these questions.

The observatory reviewed the data published by 36 financial institutions during the period 2014-2020. Il identifie 17 États et territoires comme des destinations privilégiées, parmi lesquels les Bahamas, les Îles vierges britanniques, les Îles Caïmans, Jersey et Guernesey, Gibraltar, Hong Kong, Macao, Panama ou encore les de États États’ son Luxembourg.

The profits recorded in tax havens are extraordinarily high: 238,000 euros per employee compared to 65,000 euros in other countries. This suggests that profits recorded in tax havens are mainly transferred from other countries where services are produced, observatory experts say.

Among the major banks, they regard HSBC as the champion of these practices. More than 62% of its pre-tax profits were recorded in tax havens between 2018 and 2020, compared to 49.8% for Italy’s Monte dei Paschi (BMPS) which comes in second place. Standard Chartered (29.8%) completed the platform. Germany’s Deutsche Bank and Nord LP come in fourth and fifth.

“HSBC is the largest bank in Hong Kong with 30,000 employees, and because of our heritage, scale of operations and strategy, a large proportion of the group’s profits continue to flow here,” the British bank defended in an interview with AFP.

Its counterpart Standard Chartered has announced that it is not “artificially” transferring its profits to low-tax countries. “We have a global business and do business in both high and low tax jurisdictions,” the group said.

Deutsche Bank, for its part, states that of the 60 countries in which it operates, none are on the European list of non-cooperative countries. It adds that its profits are taxed where they are earned.

Monte dei Paschi asserted that the study “does not properly represent the reality of BMPS because it is based on incomplete information”, as it “may have” taken into account “only profits declared in Luxembourg in 2018” without including a “loss of a similar amount” declared in that country in year 2017.

As for French institutions, Société Générale – which declined to comment – is the most exposed, with profits accounting for 13.8% of its profits in tax havens. Its citizens Credit Agricole and BNP Paribas respectively indicate 11.5% and 6.9%. But the three groups reduced their activity in these countries compared to the 2014-2016 period, according to the study office.

The LuxLeaks scandals in 2014, followed by the Panama Papers, highlighted the topic of tax evasion and led to a tightening of financial transparency obligations.

Negotiations are underway in the Organization for Economic Co-operation and Development to impose a minimum tax on the profits of multinational corporations in order to combat tax havens.

The observatory estimates that a minimum rate of 15% on banks will generate 3 to 5 billion euros in additional revenue for European countries. These numbers will triple to 10 to 13 billion at 25%.