Disclosures mandated by new European Commission laws reveal brazen signs of tax dodging by the biggest American and European banks, according to a new report by Oxfam and the Fair Finance Guide International today.
Oxfam analyzed the public country by country tax reports of Bank of America, Citi, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo, alongside Europe’s 20 biggest banks, finding that banks are booking tens of billions of dollars in profits in tax havens, well out of proportion to the level of real economic activity that occurs there. The report, ‘Opening the Vaults,’ finds that banks are likely avoiding paying their fair share of tax by artificially shifting their profits to tax havens that charge very low tax rates.
“As President Trump and Congress prepare to reform the US tax code these disclosures reveal the lengths to which profitable companies will go to avoid paying their taxes and the importance of greater transparency to expose potential tax dodging,” said Robbie Silverman, Private Sector advisor for Oxfam. “Tax reform needs to crack down on tax haven abuse, not reward the biggest tax dodgers. President Trump and Congress must ensure America catches up to Europe in requiring companies to publicly report where they earn profits and where they pay tax, but current reform proposals floated by the President and Congressional leaders only make matters worse.”
The top six US banks earned 9 percent of their global revenues in EU countries in 2015, but only made 1 percent of their global tax payments there. Europe’s 20 biggest banks registered more than $26 billion in profits, over a quarter of their overall profits, in tax havens.
The research was made possible by new EU transparency rules that require European banks to publish information on the profits they make and the tax they pay in every country they operate. Looking at the top 6 US banks, the report finds that:
- US banks’ EU subsidiaries in tax havens are twice as profitable on average (41 percent average profit margin) as their other subsidiaries (21 percent average profit margin) suggesting that banks may be manipulating their business practices to report profits in tax havens rather than where they are really earned.
- US banks on average made a 43 percent profit margin on their earnings in Ireland—a recognized tax haven. Ireland accounts for three-quarters of all the profits earned in tax havens.
- Goldman Sachs’ subsidiary in the Cayman Islands reported $100 million in profits despite paying $0 in tax and employing no staff. This single subsidiary earned more than 1% of all profits booked by all US banks in Europe without having to hire a single person or spend a single dollar in expenses.
- Morgan Stanley has a subsidiary in Jersey which reported $6m in profits, with no staff and paying no tax.
- Wells Fargo makes 65 percent of its EU profits in tax havens.
- US financial and tax disclosures are inadequate to track the full extent of US bank tax dodging and must be improved.
- Looking at the top 20 European Banks the report finds: Tax havens account for 26 percent of the profits made by the 20 biggest European banks - an estimated $26 billion - but only 12 percent of banks’ turnover and 7 percent of the banks’ employees.
- Subsidiaries in tax havens are on average twice as lucrative for banks as those elsewhere. For every $100 of activity, banks make $42 of profit in tax havens compared to a global average of $19.
- Bank employees in tax havens appear to be 4 times more productive than the average bank employee – generating an average profit of $184,000 per year compared to just $48,000 a year for an average employee.
- In 2015 European banks posted at least $675 million in profits in tax havens where they employ nobody. For example, the French bank BNP Paribas made $144 million tax free profit in the Cayman Islands despite having no staff based there.
- Some banks are reporting profits in tax havens while reporting losses elsewhere. For example, Germany’s Deutsche Bank registered low profits or losses in many major markets in 2015 while booking almost $2.1 billion in profits in tax havens.
- Luxembourg and Ireland are the most favored tax havens, accounting for 29 percent of the profits banks posted in tax havens in 2015. The 20 biggest banks posted $5.26 billion of profits in the tiny tax haven of Luxembourg in 2015 – more than they did in the UK, Sweden and Germany combined.
- Banks often pay little or no tax on the profits they post in tax havens. European banks paid no tax on $411 million of profit they posted in seven tax havens in 2015. In Ireland, European banks paid an effective tax rate of no more than 6 percent – half the statutory rate – with three banks (Barclays, RBS and Crédit Agricole) paying no more than 2 percent.
- The report does not accuse any of the banks of acting illegally—rather, the new disclosures demonstrate how the current tax system permits companies to dodge billions of dollars of tax within the bounds of the law.
“All companies and individuals have a responsibility to pay their rightful share of tax,” said Silverman. “Tax dodging deprives the US, Europe and the developing world of the money they need to pay for doctors, teachers and basic needs that lift people out of poverty.”
According to Oxfam, many countries are being cheated out of the funds needed to tackle poverty and inequality by corporate tax dodgers, with poor countries being hit the hardest. Tax dodging by multinational companies costs the US and poor countries over $100 billion each every year. This is enough money to provide an education for the 124 million children who aren’t in school and fund healthcare interventions that could prevent the deaths of at least six million children.
Transparency measures, such as the EU rules on public country-by-country reporting, are vital tools in the global fight against tax dodging. But the US is woefully behind in cracking down on US companies that are using complex and secretive schemes to funnel their profits into tax havens.
“The EU’s transparency rules are starting to open up the often murky world of corporate taxation to public scrutiny,” said Silverman. “These rules must now be extended to ensure all large corporations make public basic financial information for every country in which they operate. This will make it easier for all countries – including the poorest – to establish if companies are paying their fair share of tax.”
Notes to editors:
The report, 'Opening the vaults: the use of tax havens by Europe's biggest banks,’ a breakdown of bank data, and a methodology document is available here. The complete data on which Oxfam based its calculations is also available.
The 6 American banks assessed by Oxfam include: Bank of America, Citi, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo
The 20 European banks assessed by Oxfam include: HSBC, Barclays, RBS, Lloyds and Standard Charter (UK); BNP Paribas, Crédit Agricole, Société Générale, BPCE, and Crédit Mutuel-CIC headquartered (France); Deutsche Bank, Commerzbank AG, and IPEX (Germany); ING Group and Rabobank (Netherlands); UniCredit and Intesa Sanpaolo (Italy), Santander and BBVA (Spain); and Nordea (Sweden).
All banks were asked to comment on the findings of the report before publication – their responses are outlined in the report.