It is a well-known fact that large corporations, above all digital companies, hardly pay any tax because they move their profits to tax havens. But how much money do Member States lose due to tax evasion by individuals? A new study of the European Commission sheds light.
According to a recently published study of the Commission, EU Member States lost a total of 46 billion Euro in income due to the tax evasion by private individuals in 2016. The study, commissioned by the Directorate-General of Taxation and Customs Union (DG TAXUD) provides an estimate of the global offshore wealth of private individuals and apportions it to the EU Member States. In addition, evaded taxes are calculated; not only those relating to offshore assets, but also tax deficits in respect of income tax due to originally not declared profits, which were moved to tax havens. The magnitude of the issue is shown by the amount of offshore assets owned by Europeans: in 2016, the total amount was 1.5 billion Euro. The overall amount of global offshore wealth for 2016 is 7.5 billion Euro. The study calculates the values for 2016 and provides estimates for the period 2001 to 2016.
France loses the most, Austria in place 10
In rough terms: the larger the economy, the larger the amount of evaded taxes. Front-runner of the loss account is France with 10.08 billion of lost income taxes in 2016, closely followed by Great Britain (8.52 billion €) and Germany (7.22 billion €). With 1.29 billion of unpaid taxes, Austria ranks in place 10. Overall, the offshore assets of Austrians for 2016 are estimated to a total of 41 billion Euro. The break-down of offshore assets against the Gross Domestic Product vary strongly: in 2016, the offshore wealth of Cypriots was half the size of the Cypriot GDP. Malta, Greece and Bulgaria are also wide above the EU average of 9.7 % GDP. At just under 11 %, Austria is also above average.
Measures against tax evasion are making an impact
Whilst the global offshore wealth is growing, the offshore wealth of EU residents has slightly decreased. The 2008 financial crisis caused a decline, which, however, has been reversed since 2011. Offshore wealth also declined in 2015 and 2016. Pierre Moscovici, outgoing Commissioner for Economic and Financial Affairs, Taxation and Customs, regards this as a success of EU reforms fighting against tax evasion. The process was started by the EU Savings Directive, which in 2014 was to a large extent replaced by the automatic information exchange (Common Reporting Standard), introduced by the OECD and extended by the Directive on the mandatory automatic exchange of information in the field of taxation. A pioneer for this development was the Foreign Account Tax Compliance Act (FACTA), implemented in 2010 in the US. Nevertheless, global offshore wealth - taxed or not - is growing, in particular due to countries outside the OECD. The Chinese account for the largest growth of offshore assets.
The authors of the study point out that the study does not give a complete picture of offshore wealth, tax avoidance and tax evasion. Assets such as real estate, life insurances or cash are not included. Hence, the Green MEP Sven Giegold talks of the “tip of the iceberg” and recommends the urgent implementation of the national property register within the scope of the Money Laundering Directive. However, in order to be able to fight against tax evasion more effectively overall, an international registry must also be introduced, which discloses the beneficial owners and authorises persons of all legal entities. Apart from that, sanctions (e.g. prohibition of deducting taxes for payments in tax havens) have to be imposed on countries allowing for intransparent structures and not complying with OECD Standards.