SOMO researches the use of tax havens by Europe’s biggest banks

Tax avoidance and evasion have featured prominently in the public debate over the last few years. Tax avoidance is not only unfair to those who pay their fair share of taxes but also deprives governments of valuable resources needed to tackle poverty and inequality. Today, Oxfam(opens in new window) launched its report Opening the Vaults: The Use of Tax Havens by Europe’s Biggest Banks that provides a glimpse into the harm that tax abuse is causing across the world. SOMO collected the data from public country-by-country reports of 20 European banks and carried out a first analysis of the figures which was used as input for the Oxfam report.

Country-by-country reporting

Following the introduction of the 2013 EU Capital Requirement Directive, European banks are obliged to disclose new and additional information for each country of operation. Since 2015, banks must provide a list of (main) subsidiaries and the type of (main) activities they are involved in, the turnover, the profit or loss before tax, the number of employees, the corporate tax obligation and the public subsidies received. This new publicly available data gives insights into the activities and financial profiles of banks in countries where they have operations.

SOMO’s research

SOMO’s analysis contributed to the understanding of the extent and nature of large EU banks’ use of tax and regulatory havens. The objective of this analysis was to gain insights into activities and financial results of banks in countries where they have operations with a focus on tax havens. SOMO also evaluated the usefulness of the data of the country-by-country (CBCR) reporting and formulated policy recommendations for improvement and expansion of CBCR data. Finally, SOMO identified the most popular offshore centres (OFCs) for banks and their motivations to locate activities in different sorts of OFCs.

Large banks disproportionally use tax havens

One of the main conclusions of Oxfam’s report is that large banks in the EU are disproportionally using tax havens to benefit from their favourable tax and regulatory rules. The 20 banks register around one in every four euro of their profits in tax havens, which is an estimated total of €25 billion in 2015. Thereby, there is a clear discrepancy between the profits made by banks in tax havens and the level of real economic activity that they undertake in those countries. The report confirms the need for more transparency and corporate accountability and the benefit of a tool such as public CBCR.