The ETO , issued on 6 September, covers the activities of several large European banks over seven years. The methodology used combines two factors: the pre-tax profit per employee made by banks in a given jurisdiction and the effective tax rate applied to banks in that jurisdiction. And using this calculation, Luxembourg qualifies as a tax haven, along with 16 other jurisdictions: the Bahamas, Bermuda, British Virgin Islands, Cayman Islands, Gibraltar, Guernsey, Hong Kong, Ireland, Isle of Man, Jersey, Kuwait, Macao, Malta, Mauritius, Panama and Qatar.
Once this list is established, the study analyses the activities of 36 European systemic banks operating in 11 European countries and required to publicly report country-by-country data on their activities since 2015, and more specifically the level and evolution of profits booked by these banks in tax havens over the period 2014-2020. Also calculated are their effective tax rates and their tax deficits, defined as the difference between what these banks currently pay in taxes and what they would pay if they were subject to a minimum effective tax rate in each country.
Still significant use of tax havens
From this approach, the ETO found that the major European banks still make "significant" use of tax havens. Despite scandals such as LuxLeaks and the Panama Papers, €20bn - "i.e. 14% of their total profits" - are transiting through these jurisdictions. "A stable figure since 2014 despite the introduction of mandatory disclosure of information." Of the sample, 8 banks have increased their activity in tax havens, while 8 have decreased it. Five banks have no presence in these jurisdictions and 7 have kept their activity stable.
"The profitability of banks in tax havens is abnormally high: €238,000 per employee, compared to about €65,000 in non-haven countries. This suggests that profits booked in tax havens are mainly transferred out of other countries where the production of services takes place. About 25% of the profits made by the European banks in our sample are booked in countries with an effective tax rate of less than 15%", according to the ETO.
Not all banks have the same practice of "tax havens".
HSBC still in the firing line
Of the sample studied, 9 banks do not record any pre-tax profits in these havens. For the others, this percentage is around 20%, with a record of 58% for HSBC. The average effective tax rate paid by the banks in the sample is 20%, with a minimum of 10% and a maximum of 30%. Seven banks have a particularly low effective tax rate of 15% or less.
Two banks are singled out for having a "relatively large" presence in tax havens: HSBC - established in Hong Kong - with 58% of its profits accounted for in the 17 tax havens and Banca Monte Dei Paschi di Siena (55%). This is followed by Standard Chartered (33%) and Deutsche Bank (28%).
A key element in the study's reasoning is profit per employee. It is 7 times higher for the 17 winning countries than the world average: €380,700 compared to €51,400. This value reaches €2m for the British Virgin Islands, €953,000 for the Cayman Islands in second place, and around €400,000 for the third place country, Luxembourg. The grand duchy, on the other hand, has the highest tax rate at 15%. Malta, last in the ranking, is below the €150,000 mark with a tax rate of 12%.
€13 billion in lost revenue
According to the ETO, if the minimum tax proposal put forward by the G20 and the OECD were applied, with a retained tax rate of 25%, banks would have to pay €10bn to €13bn in additional taxes per year. If the rate were 15%, the benefits to public finances would be between €3bn and €5bn. The ETO said a global minimum tax with a rate of 25% is needed to curb the use of tax havens by the banking sector.
The EU Tax Observatory, created by the Paris School of Economics and funded by the European Commission, is headed by French economist Gabriel Zucman, a specialist in social inequality and tax havens.