Global Tax Evasion Report 2024: 15 years of fighting tax havens and new challenges

:Борьба с налоговыми уголковыми: успехи, сожаления и планы

Lab EU Tax Observatory Gabriel Zucman has presented a report on the 15-year fight against tax havens. Results for individuals, but less for companies, have been obtained. The wave of regulation continues with new promising areas. Is it possible to end tax havens?

For all the times politicians and international organizations claim to be waging war against tax dodgers, have there been any successes? The work of researchers at the EU Tax Observatory, based at the Paris School of Economics with Gabriel Zucman, provides detailed and numerical answers to these questions. For the first time, the results of their research and existing work are compiled in a report - Global Tax Evasion Report 2024 -''published today. The main findings of this scholarly paper, which covers the last fifteen years: banking secrecy is ending for individuals, but despite ongoing international efforts, many multinational corporations are still successfully evading taxes.

In the early 2000s, the hidden wealth of individuals in tax havens amounted to 9% of the world's GDP. Today, that number has fallen to 3%. An impressive result, achieved thanks to the introduction of the automatic exchange of tax information between the administrations of more than a hundred countries since 2014. Switzerland, which was the main destination for this capital until 2007-2008, still attracts only 20% of this capital today. Asian''markets such as Hong Kong and Singapore have increased their share as affluent residents of developing countries have become more prominent, although very wealthy residents of developed countries are still the source of 70% of these flows.

Problems and new circumvention schemes

All solved for individuals? Far from it. Challenges remain, whether due to lack of administrative capacity in some countries, problems classifying transactions, or the fact that the United States implements automatic exchange according to its own rules different from the global standard, leaving open several vulnerabilities. The authors of the report estimate that a quarter of the financial assets hidden in tax havens were withdrawn in the form of''undeclared real estate. There are also many illegal schemes to circumvent the new rules. Some banks decide to take a risk and continue to offer their privacy services without declaring foreign clients. Fictitious banks are being set up without providing any information. Taxpayers buy fake citizenships or split their transactions to stay below the declaration thresholds.

The report also points out another interesting point: its authors believe that a quarter of the financial assets hidden in tax havens were withdrawn in the form of undeclared real estate. Should we move to automatic exchange of real estate ownership information? "That's the next issue that could be discussed, but it''advance.

Fighting evasion by multinational corporations

The results in the fight against tax evasion by multinational corporations are not so good. In 2022, companies worldwide generated $16 trillion in profits, of which $2.8 trillion was generated in jurisdictions outside their home country, including $1 trillion in tax havens. The fact that only 6.2% of total profits are in these territories shows that not all companies are multinational. But the fact that 36% of overseas profits are in tax havens means that the latter use them extensively. Not all do so with the same intensity. The report suggests that about''half (46%) of US multinationals' overseas profits are in tax havens, compared to 'only' 30% for European multinationals.

It should be noted that many large US companies are in sectors that generate significant profits, such as digital technology or pharmaceuticals. Which countries most allow multinational corporations to evade taxes?

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56% of them are in the European Union, with the Netherlands being the main one, accounting for a quarter of the total. In the heart of Europe, the Dutch Republic is the world's top tax parasite in this area. For EU countries, evasion strategies''taxes by multinational corporations are the most expensive, accounting for 20% of corporate income tax revenues, compared to 14% in the US and the rest of the OECD (7% in other countries).

In general, since the introduction of international policies to combat such practices in 2015 and Donald Trump's new tax legislation in December 2017, artificial profit transfers have stopped growing and have stagnated at the same level. It will take a few more years to see the beginning of a decline, or lack thereof. In October 2021, some 140 countries agreed to introduce a minimum effective tax rate of 15% for profits held overseas. To appreciate the progress this represents, it is worth remembering,''that the use of tax havens allowed some companies to set tax rates between 1% and 3%. The treaty reached in 2021 requires tax havens to increase the effective tax rate for companies to 15%. Otherwise, mother countries can apply the difference between the tax haven rate and 15%. And if, for example, neither the Netherlands nor the U.S. government applies these mechanisms, France could decide to appropriate a portion of the profits kept in the Netherlands by a U.S. multinational company, depending on the activities carried out on French territory. This is an important safety net. This mechanics, ideal in theory, has been partially abbreviated in practice, but analyzes the report. В''The negotiations provide for the possibility of reducing the rate below 15% if real activity develops in the country. The OECD treaty is aimed at preventing artificial profit transfers, not at undermining tax competition between countries. Could it encourage some large companies to leave France or Germany to locate in Ireland or the Netherlands? "The risk is real," says Gabriel Zucman, one of the report's authors. Pascal Saint-Aman, former director of the Center for Tax Policy and Administration, who conducted these negotiations, contradicts this. To understand his argument, a small technical point needs to be explained. The 15% minimum tax treaty provides for the possibility of exempting part of the profits''of the minimum tax corresponding to 8% of assets and 10% of payroll, the proportions declining over ten years to reach 5%. The reduction of taxation in such proportions 'is interesting for factories or mines. But not for the terciary sector offered by the Netherlands or Ireland", he continues. Reducing one's base from 5% to 8% of a factory's value may be advantageous - developing countries and Eastern Europe have been pushing for this for reasons of attractiveness - but for the office of a multinational company it is not worth the hassle of moving. Besides, tax credits don't count. And under pressure from US companies in the summer of 2023, network security was put on hold until 2026, instead of 2025 as originally planned. While''A minimum taxation of 15% could generate the equivalent of a little over 9% of global tax revenues for companies, all these restrictive measures reduce revenues to 4.8% of the total, half, according to the report's experts. 'The tax base remains broad,' F.

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