Ireland among bank tax havens listed by French think tank

Ireland has been listed among 17 territories used as a tax haven by big European banks who are shifting their profits around the world to minimise their tax bills, according to a report from a Paris-based independent research group.

The analysis by the EU Tax Observatory found that the main European banks book €20 billion or 14 per cent of their total profits in what it describes as tax havens each year, while the percentage of their staff employed in these jurisdictions is only 4 per cent.

The study, which covers the period from 2014 to 2020, found that profits booked by the banks in tax havens were “abnormally high” at €238,000 per employee, as opposed to about €65,000 in non-haven countries. The mean pretax profit per employee for Ireland was about €250,000.

“This suggests that the profits booked in tax havens are primarily shifted out of other countries where service production occurs,” the report’s authors said, adding that about one-quarter of the profits made by the European banks in its sample were booked in countries with an effective tax rate lower than 15 per cent.

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Rate below 15%

Its definition of a tax haven was based on the number of employees located in a country relative to the profits being booked there, and an effective tax rate below 15 per cent.

The study found that if a 15 per cent minimum global corporate tax rate was applied to these profits – as has been proposed recently for multinationals by the G20 and the OECD – the banks would pay €3 billion to €5 billion in additional taxes annually. This would represent roughly an additional 13 per cent of the tax revenue currently paid by them.

A 21 per cent rate would yield €6 billion to €9 billion in extra taxes, and a 25 per cent minimum rate would require them to pay €10 billion to €13 billion in additional taxes each year.

For Ireland, the study found that the effective tax rate applied to such profits was between 6 and 11.7 per cent over the six-year period. The UK was the biggest loser last year in terms of revenue lost to tax havens at €505 million, followed by France at €41 million, the report found.

‘Profit shifting’

The other territories listed as tax havens are Bahamas, Bermuda, the British Virgin Islands, Cayman Islands, Guernsey, Gibraltar, Hong Kong, Isle of Man, Jersey, Kuwait, Luxembourg, Macao, Malta, Mauritius, Panama and Qatar.

The analysis covers 36 systemic European banks (20 of them had a presence in the Republic last year) that have been required to publicly report country-by-country data on their activities since 2014. These include ABN Amro, Barclays, KBC, Danske Bank, Deutsche Bank, BNP Paribas, Banco Santander, Lloyds and Rabobank. None of the domestic Irish banks featured in the study.

The authors said the country-by-country reporting was a “vital piece of information to track profit shifting and corporate tax avoidance”, although European banks have not significantly curtailed their use of tax havens since 2014.

The EU Tax Observatory is hosted by the Paris School of Economics and receives funding from the European Union to conduct research on taxation.

In June, it produced a report on profit shifting by multinationals companies to avoid taxation. The authors of the report said the findings of their latest report did not reflect the views of the European Commission.