The fight against tax havens: achievements, regrets, and plans

The European Tax Observatory laboratory led by Gabriel Zucman summarizes 15 years of fighting against tax havens. Results have been achieved for individuals, but less so for companies. The wave of regulation continues with new prospects. Will a final outcome in the fight against tax havens ever be reached?

Throughout the time that politicians and international organizations have claimed to be waging a war against tax evasion, have any successes been achieved? The work of researchers at the European Tax Observatory, based at the Paris School of Economics and led by Gabriel Zucman, provides detailed and numerical answers to these questions. For the first time, the results of their research and existing studies have been compiled in the Global Tax Evasion Report 2024, published today.

Key findings of the study

• Banking secrecy is coming to an end for individuals, while, despite current international efforts, many multinational companies are still successfully evading taxes.
• In the early 2000s, hidden wealth of individuals in tax havens accounted for 9% of the world's GDP. Today, this figure has decreased to 3%.
• The authors of the report estimate that a quarter of the financial assets hidden in tax havens have been withdrawn from them and turned into undeclared real estate.

It is also important to note all the new ways to circumvent the new rules. Some banks risk continuing to offer their privacy services without declaring their foreign clients. Fake banks are being created that provide no information. Taxpayers acquire fake citizenships or break up their operations to stay below the reporting thresholds.

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Results of the fight against tax evasion by multinational corporations

• In 2022, companies around the world earned $16 trillion in profits, of which $2.8 trillion was generated outside their home country, including $1 trillion in tax havens.
• According to the report, about half (46%) of the profits earned abroad by American multinational companies are located in tax havens, while the share of this figure is "only" 30% for European multinational companies.

Which countries most allow multinational corporations to evade taxes? 56% of them are in the European Union, with the Netherlands in first place, accounting for a quarter of the total. In the heart of Europe, the Netherlands is the leading global tax haven in this regard.

Overall, since the introduction of international policies to combat these practices in 2015 and the new tax law by Donald Trump in December 2017, artificial profit shifting has stopped growing and is stagnating at a plateau. It will take a few more years to see whether a decline will begin or not.

In October 2021, nearly 140 countries agreed to implement an effective minimum tax rate of 15% on profits held abroad. To assess the progress this represents, it is important to remember that the use of tax havens allowed some companies to report tax rates as low as 1% to 3%. The agreement reached in 2021 requires tax havens to raise the effective tax rate on companies to 15%.

This is important insurance. However, as the report indicates, this theoretically ideal mechanism has been partially weakened in practice. During the negotiations, there was an opportunity to reduce the rate to 15% if the activity develops in a specific country. The OECD agreement aims to prevent artificial profit shifting, rather than undermining tax competition between states.