Drawing back the curtain on global tax fraud, an independent EU research lab affiliated with the Paris School of Economics has released a new report on international tax evasion.
While much has been said in the past decade about global financial fraud—how much has changed, what has been done, and has anything slowed global tax evasion? The report from the EU Tax Observatory, funded by the EU, provides an initial look at these pressing questions.
Research points made in the report include:
- The rate of offshore tax evasion has declined by a factor of three in the last decade. This is likely due to automatic reporting measures that require banking and financial institutions to report on offshore accounts. In the U.S., this equates to FATCA and FBAR reporting required by the Internal Revenue Service. The report suggests that compliance measures can have a major impact on global tax fraud when uniformly applied. That said, assets continue to evade discovery and some financial entities continue to operate under the radar through loopholes and creative money movement.
- The trend of multinational companies making money locally and shifting profit into global tax havens continues to be an effective form of tax evasion which shows little sign of decline.
- While the prospect of a global minimum tax rate of 15 percent showed real promise in 2021, the measure is declining under an onslaught of loopholes, political showmanship, and continued “race to the bottom” tactics of corporate tax rates in some tax jurisdictions. The report notes a global minimum tax on billionaires of about two percent of their wealth would generate approximately $250 billion from less than 3,000 individuals around the world.
- More countries have entered the fray of competitive tax measures to attract investment. While becoming a special tax regime can help a country spur domestic investment and local tax collection, it has a negative impact on other countries and their tax revenue.
- Global billionaires continue to enjoy low personal tax rates, often between zero percent and 0.5 percent of their wealth. The report notes holding companies are a primary tool that allow owners of publicly listed companies to pay dividends to avoid paying taxes. Policies are not globally aligned. The U.S. does consider tax dividends earned through holding companies as income.
The report takes a deep dive on these and other issues. In a later blog, we will discuss recommendations for aligning tax justice with globalization.
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