A new report published yesterday by Oxfam and the Fair Finance Guide International has found that there is strong evidence that Ireland is facilitating significant corporate tax avoidance by top European banks.
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%).
Furthermore, 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.
According to the report, 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% – half the statutory rate of 12.5% – with three banks (Barclays, RBS and Crédit Agricole) paying no more than 2%.
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 according to Oxfam.
Tax havens account for 26% of the profits (an estimated €25 billion) made by the 20 biggest European banks but only 12% of banks’ global turnover and 7% 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.
However, a new European Commission proposal designed to extend public reporting to all big companies needs to be enhanced they warn. The proposal is limited to companies with a turnover of €750 million or more, a measure that would exclude up to 90% of multinationals, and does not require companies to report on their activities in all the countries in which they operate – including developing countries.
Oxfam Ireland’s Senior Policy and Research Coordinator Michael McCarthy Flynn says, "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."
He added, "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."