George Town, Grand Cayman
Europe's largest banks book an average of € 20 billion ($ 23.7 billion) in tax havens every year, according to a new report.
That accounts for 14% of their total profit, the analysis showed.
The EU Tax Observatory's report, released on Monday, examined the activities of 36 systemically important European banks headquartered in 11 countries across Europe that have been subject to mandatory country-by-country reporting of their actions since 2015.
17 countries were included in the report's list of tax havens: the Bahamas, Bermuda, the British Virgin Islands, the Cayman Islands, Guernsey, Gibraltar, Hong Kong, Ireland, the Isle of Man, Jersey, Kuwait, Luxembourg, Macau, Malta, Mauritius, Panama and Qatar.
The report found that between 2014 and 2020, around 65% of banks' profits abroad were generated through affiliates. Earnings per employee were also far higher in tax havens than in other countries, according to the report, with subsidiaries in tax havens showing high profitability and profit margins.
The researchers also indicated that 25% of banks' profits were booked in countries where the effective tax rate was below 15%.
"Taken together, this evidence points to a significant presence and stable use of tax havens by European banks over the years," the report said.
"The profitability of banks in tax havens is unusually high: 238,000 euros per employee compared to around 65,000 euros in non-port countries," added the authors. "This suggests that the profits posted in tax havens are mainly being shifted from other countries where services are provided."
Variation between banks
The use of tax havens varied considerably between banks, according to the analysis. The average percentage of profits booked in tax havens between 2014 and 2020 was around 20%, according to the data, but between 0% and 58%.
Several banks have identified a "relatively high presence in tax havens" by the researchers.
"We see a variety of situations: for HSBC, most of the port profits come from just one port (Hong Kong), while in other cases multiple tax havens are involved," the report said.
According to the study, HSBC posted an average of 58% of its pre-tax profit in tax havens between 2014 and 2020.
"HSBC is the largest bank in Hong Kong with approximately 30,000 employees, and because of our tradition, size and strategy, a significant portion of the group's profits continue to be generated there," a HSBC spokesman told CNBC via email. "HSBC does not use tax avoidance strategies to artificially divert profits into low-tax countries."
Standard Chartered averaged around a third of its pre-tax profit in tax havens, according to the report, while Deutsche Bank, Nord LB and RBS averaged more than 20% of their pre-tax profit in tax ports between 2014 and 2020.
A spokesman for Standard Chartered told CNBC that the bank has extensive business in both high-tax and low-tax areas.
"We are not artificially diverting profits to low-tax countries," it said in a statement. "Taxes are seen as part of relevant business decisions and we only conduct tax planning that supports a true commercial activity. We do not enter into transactions whose sole purpose is to minimize or reduce tax costs."
Meanwhile, a Deutsche Bank spokesman told CNBC via email that the lender has active subsidiaries and branches in nearly 60 countries.
“None of these countries are on the current EU list of non-cooperative countries and territories for tax purposes. In principle, Deutsche Bank reports its profits in the countries in which they are generated, which means that profits are also taxed. “In these countries,” they said. “Depending on the type of business activity, the profit per employee can vary. The effective tax rate of the Deutsche Bank Group in 2020 was 39%. "
At the other end of the scale, Bankia BFA, Erste, Nykredit Realkredit, Swedbank and Banco Sabadell did not make any of their profits in tax havens during the seven-year sample period.
Eight banks, including Intesa Sanpaolo and HSBC, increased their presence in tax havens during the sample period, according to the EUTO. Seven lenders kept their presence in oases stable, while 16 banks reduced their use of tax havens.
The average effective tax rate paid by banks in the EUTO sample was 20% and ranged from 10 to 30%. According to the EUTO, seven banks have “a particularly low effective tax rate” of 15% or less: RBS, Barclays, Bayern LB, Nord LB, HSBC, KBC and Intesa Sanpaolo.
Spokespersons from Nord LB, RBS, Barclays, Bayern LB, KBC and Intesa Sanpaolo were not immediately available for comment upon request from CNBC.
The average corporate tax rate in the EU was 20.79% in 2020 and has decreased every year since 2014. Across Europe, the rate was 19.03% in 2020, with the corporate tax rate on the continent also gradually falling since 2014. Prices vary between European countries.
Demand for minimum tax rate
In July, 130 countries supported an OECD plan to reform international frameworks to ensure that multinational corporations pay a fair share of taxes wherever they operate. The reforms include plans for a minimum global corporate tax rate of 15%, which the OECD estimates would generate around $ 150 billion in additional global tax revenue annually.
EUTO researchers calculated that the European banks used in their analysis would have to pay 3 to 5 billion euros more in taxes every year if this rate were introduced worldwide. If the worldwide minimum rate were raised to 21%, they would pay an additional 6 to 9 billion euros annually. With a minimum corporate tax rate of 25%, the 36 European banks included in the study would pay 10 to 13 billion euros in additional taxes annually.