Banks rely 'heavily' on tax havens

18 March Mar 2016 1438 18 March 2016

Oxfam says that banks use tax havens for the same purposes as other multinationals. They artificially transfer profits made in the countries where they actually operate to reduce their tax bill.

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Oxfam says that banks use tax havens for the same purposes as other multinationals. They artificially transfer profits made in the countries where they actually operate to reduce their tax bill.

France is the first country to have translated into national law a two-years old EU banking law which requires European banks to publish information on their activities (profits and turnover), staff, tax paid and subsidies received in each territory in which they are established. This measure called the country-by-country reporting should be essential to check if the geographic spread of profits reflects the real nature of its business activity reported in each territory.

The report Following the Money: French Banks' Activities in Tax Havens uses this new data to analyse international activities of the five largest banks in France, BNP Paribas, BPCE, Société Générale, Crédit Agricole, and Crédit Mutuel. It shows that the five banks investigated make a third, close to 5 billion euros ($5.5 billion), of their international profits in tax havens. Luxembourg on its own represents 11% of banks’ international profits. “This figure confirms that tax havens play a key role in their international development strategy”, says the report.

Yet, French banks only paid a fifth, 825 million euros, of their taxes to these jurisdictions ($914 million). So the investigation is the proof that banks can also use tax havens to allow their customers to cheat the tax. Scandals, like Swissleaks, which broke in February 2015, and the collapse of the UK’s Northern Rock bank in 2007, show indeed how banks use these territories’ lack of transparency to avoid their regulatory obligations and conduct highly lucrative or speculative and high-risk business, unrelated to the real economy

But there is more to say than this. The problem with having that amount of money going unpaid to the treasuries of countries in both Europe and developing countries, is vital for funding public services, infrastructure and social services as well as redistributing wealth in order to reduce growing inequality.

So it's not surprising that a recent parliamentary report says France loses between €40 and €60 billion in tax revenue each year, which is almost equivalent to the national education budget, one of the top budget areas of 2015. “Citizens are tired of seeing how big companies abuse weak legislation to set up tricky accounting schemes and pay very little tax. It is time for decisive EU action to stop this shameless trickery of large companies," said Lucie Watrinet, advocacy adviser at CCFD-Terre Solidaire.

The report also highlights the activities of the five French banks are 60% more profitable in tax havens than in the rest of the world. For every €1000 of turnover, for example, Société Générale declares profits of €557 in tax havens, compared to €144 of profits declared in other countries, just €34 in France itself.
Do banks have no outgoings or operational costs in these territories where they make such profits? Is it artificially shifting profits to the territory in question? Or are they exploiting the relaxed regulations offered by these jurisdictions to indulge in speculative and risky but very profitable activities? Whatever the answer to these questions, the gap between profits generated and real economic activity in the tax havens is quite evident.

But the bad news are not over. Almost 10 years after the last financial crisis began and tax evasion scandals filled the front pages, nothing seems to have changed if the riskiest and most speculative activities carried out by French banks, such as portfolio management or structured finance instruments based on derivatives, are always located in tax havens. «And we are sure that banks and big businesses in other European countries will be doing the same», said Manon Aubry, advocacy adviser at Oxfam France.

Another element distinguishing tax havens from other countries is the number of employees per subsidiary. The report says that in 34 cases, banks report subsidiaries in offshore territories without any staff. In five countries (Bermuda, Cyprus, the Cayman Islands, the Isle of Man and Malta), French banks have no employee. «This is the first transparency exercise that can be conducted on the basis of data that has been made available and publically accessible thanks to new legislation. Although reporting is still not perfect, they reveal that public disclosure of basic business information is feasible and beneficial to better understand the activities of banks in tax havens. It is clearly a first step to fight tax dodging», added Aubry.

So, as a result of the analysis, Oxfam asks that transparency must be extended to all sectors of the economy in order to combat tax avoidance. This is why the proliferation of scandals affecting major multinationals shows this is not a practice confined to one sector.

Cover Photo: getty/ Oli Scarff

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