EU banks make huge profits in tax havens

According to a new report released today by Oxfam and Fair Finance Guide International, Europe's twenty largest banks register over 25% of their profits in tax havens - a figure that does not reflect the actual level of economic activity taking place there.

The report, Opening the Vaults, suggests that the gap has widened as banks use tax havens to avoid paying their fair share of taxes, to facilitate tax avoidance for their clients or to circumvent rules and laws. The study was made possible by new EU transparency rules, which require European banks to publish information on the profits they make and the taxes they pay in all countries where they operate. The report concludes:

- Tax havens account for 26% of the profits made by the 20 largest European banks - amounting to around €25 billion - but only 12% of banks' turnover and 7% of banks' employees.
- Subsidiaries in tax havens are on average twice as lucrative as those located elsewhere. For every €100 of activity, banks make a profit of €42 in tax havens, compared to the global average of €19 per €100.
- Bank employees in tax havens appear to be four times more productive than a regular bank employee - as they generate an average profit of €171,000 per year compared to €45,000 per year generated by an average employee.
- In 2015, European banks made a profit of at least €628 million in tax havens where they have no employees. For example, French bank BNP Paribas made a completely tax-free profit of €134 million in the Cayman Islands, despite having no employees there.
- Some banks report profits in tax havens while reporting losses elsewhere. For example, Germany's Deutsche Bank reported losses in several major markets in 2015, while recording almost €2 billion in profits in tax havens. Luxembourg and Ireland are the most popular tax havens, accounting for 29% of the profits banks reported from tax havens in 2015.
- The 20 largest banks reported €4.9 billion in profits in the tiny tax haven of Luxembourg in 2015 - that's more than they reported in the UK, Sweden and Germany combined.
- Banks usually pay little or no tax at all on profits they report from tax havens. European banks paid no tax on €383 million of profits they reported from seven tax havens in 2015.
- In Ireland, European banks paid an effective tax rate of no more than 6% - half the statutory rate - and three banks (Barclays, RBS and Crédit Agricole) paid no more than 2%.

"New EU transparency laws give us a glimpse into the affairs of Europe's biggest banks and it's not a pretty sight. Governments must change laws to prevent banks and other large companies from using tax havens for tax evasion and to help their clients avoid taxes. All companies and individuals have a responsibility to pay their fair share of taxes. Tax avoidance robs countries, European and developing alike, of money they need to pay doctors, teachers and social workers, for example."

Manon Aubry, Oxfam spokesperson on tax justice

Many countries are being cheated out of money by tax evaders, money that is needed to fight poverty and inequality. Unfortunately, poor countries are hit the hardest. Tax evasion by multinational companies costs poor countries over €90 billion every year. This amount of money is enough to provide 124 million children with an education and to fund healthcare that could prevent at least 6 million child deaths.

Transparency measures, such as EU rules on public country-by-country reporting, are essential tools in the global fight against tax evasion and avoidance. However, the new proposal from the European Commission, which aims to extend public reporting beyond the banking sector, is flawed. The proposal is limited to companies with a turnover of €750 million or more, a measure that would exclude up to 90% of all multinationals, and does not require companies to report on their activities in all countries where they operate, including developing countries.

"EU transparency rules have started to open up the sometimes murky world of corporate taxation to public scrutiny. These rules must now be extended to ensure that all large companies provide financial reports for each country where they operate. This will make it easier for all countries - including the poorest - to determine whether or not companies are paying their taxes."

Manon Aubry, Oxfam spokesperson on tax justice