New Oxfam report: Strong evidence that Ireland facilitates significant tax avoidance by top European banks
- In Ireland, three banks paid an effective tax rate of no more than 2%
- Massive average profitability rate here of 76% for top European banks
- Average employee in Ireland of banks studied generated €409,000 in profits in 2015, over 9 times worldwide average
Monday 27th March, 2017: Immediate release
There is strong evidence that Ireland is facilitating significant corporate tax avoidance by top European banks, according to a new report published today by Oxfam and the Fair Finance Guide International.
The report, Opening the Vaults, studied Europe’s 20 biggest banks (16 of which operate in Ireland). 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 in which they operate.
The research found that a disproportionate amount of profits of the top European banks are reported in Ireland, with these banks in 2015 making more than €2.3bn in profits here on €3bn of turnover – a massive profitability rate of 76% that is four times higher than the global average. Only the Cayman Islands had a higher average profitability rate (167%).
Ireland appears to be a very productive location for European banks with just the Cayman Islands, Curacao and Luxembourg having a higher average profit per employee, according to the report. An average employee in Ireland generated €409,000 in profits in 2015, more than nine times the average for employees worldwide. The Spanish bank BBVA stands out in this respect: while the bank’s employees generated on average a profit of €33,000 each, an average employee in Ireland generated €6.8m, well over 200 times as much.
The 16 top European banks operating in Ireland examined in the research paid an average effective tax rate in Ireland of no more than 6 percent – half the statutory rate of 12.5% – with three banks (Barclays, RBS and Crédit Agricole) paying no more than 2 percent.
Oxfam said countries are being denied large amounts of potential tax revenue and this is contributing to inequality and poverty as governments are forced to decide between increasing indirect taxes such as value-added tax (VAT), which are paid disproportionately by ordinary people, or cutting public services, which hits the poorest hardest. At the same time, increased profits as a result of lower corporate taxation benefit wealthy companies’ shareholders, further increasing the gap between rich and poor.
Oxfam Ireland’s Senior Policy and Research Coordinator Michael McCarthy Flynn said: “The massive profitability levels of European banks in Ireland suggests that large profits may be reported in Ireland as a tax avoidance strategy. This is creating little additional benefit to the Irish economy and tarnishing Ireland’s reputation.
“The cost to the Irish exchequer of loopholes that facilitate banks to pay such low levels of tax is rarely publicly documented and accounted for. For example, if RBS’ profits had been taxed at the statutory rate of 12.5 percent, the bank would have paid €120.5m in additional taxes.
“The research raises serious questions about the effectiveness of the Irish Government’s measures to tackle corporate tax avoidance. The rules must be changed to prevent banks and other big businesses from dodging taxes or helping their clients dodge taxes. Tax dodging deprives countries throughout Europe and the developing world of the money they need to pay for doctors, teachers and care workers.”
Tax havens account for 26 percent of the profits (an estimated €25 billion) made by the 20 biggest European banks but only 12 percent of banks’ global turnover and 7 percent of the banks’ employees – well out of proportion to the level of real economic activity that occurs in these countries. While there may be legitimate business reasons for booking high profits in some cases, the report suggests that discrepancies may have arisen because some banks are using tax havens to avoid paying their fair share of tax, to facilitate tax dodging for their clients, or to circumvent regulations and legal requirements.
Oxfam says transparency measures, such as EU rules making corporations publically report on a country by country basis where they make their profits and pay their taxes, are vital tools in the global fight against tax dodging. (Ireland is opposed to the public element of this reporting). However, a new European Commission proposal designed to extend public reporting to all big companies needs to be enhanced. The proposal is limited to companies with a turnover of €750 million or more, a measure that would exclude up to 90 percent of multinationals, and does not require companies to report on their activities in all the countries in which they operate – including developing countries.
Mr McCarthy Flynn continued: “It’s only fair that businesses open their books to scrutiny so that we can see whether they are paying their fair share towards public services in both rich and poor countries. As a matter of urgency the EU should strengthen and extend its draft directive to require that all large multinationals publish separate financial reports for every country where they operate, and the Irish Government should end its opposition to these new transparency proposals. This will make it easier for all countries – including the poorest – to establish if companies are paying their fair share of tax or not.
“In addition, Ireland’s transfer pricing regime should be amended to give Irish Revenue officials the power to investigate where companies may be using inter-company transactions to avoid tax.”
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NOTES TO EDITORS:
The report, Opening the vaults: the use of tax havens by Europe's biggest banks, a breakdown of bank data, infographics and a methodology document is available at https://oxfam.box.com/s/wn9mdt217isfp4ji8dzossuyxphb698d. The complete data on which Oxfam based its calculations is also available.
The 20 European banks (16 of which operate in Ireland) assessed by Oxfam include: HSBC, Barclays, RBS, Lloyds and Standard Chartered (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.
More statistics from the report:
- Luxembourg and Ireland are the most favoured tax havens, accounting for 29 percent of the profits banks posted in tax havens in 2015.
- Banks often pay little or no tax on the profits they post in tax havens. European banks paid no tax on €383 million of profit they posted in seven tax havens in 2015. In 2015 European banks posted at least €628 million in profits in tax havens where they employ nobody.
- Tax havens account for 26 percent of the profits made by the 20 biggest European banks – an estimated €25 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.
- 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 billion in profits in tax havens.
Oxfam is an international confederation of 19 non-governmental organisations working with partners in over 90 countries to end the injustices that cause poverty. www.oxfamireland.org
Fair Finance Guide International is an international civil society network, initiated by Oxfam that seeks to strengthen the commitment of banks and other financial institutions to social, environmental and human rights standards. http://fairfinanceguide.org/