A new report from Tax Research UK commissioned by our Green group in the European Parliament shows there are strong indications for profit shifting in the banking sector. The report highlights that the 26 banks surveyed have been systematically over-reporting their profits in some low tax jurisdictions or places identifiable as tax havens, whilst appearing to under-report them in those places where they have major centres of operation. The report concludes that country-by-country reporting data is a useful and powerful tool in helping to identify tax dumping. We are now urging banks to explain the findings.
The report shows a potential reallocation of profits – for the purpose of reducing tax liabilities – exceeding €100 million Euro into or out of 39 jurisdictions. These surveys show that some European Union jurisdictions emerge as potential destinations for the relocation of profits. In particular Ireland, Luxembourg and Netherlands seem to stand out as possible banking tax havens.
Deutsche Bank is, right after Royal Bank of Scotland, on top of the list in the overall ranking of banks showing the highest potential risk of base erosion and profits shifting. Using the “unitary taxation risk assessment” method, the report suggests that Deutsche might have reallocated 17.9% of its total declared profits. The bank, known for doubtful business pracitces, records its highest profit per capita of employees in Malta which is equally known to be a significant tax haven for German companies.
You can download the full CbCR report here.
After the LuxLeaks revelations, there is no longer any doubt about the aggressive tax practices of large companies and EU Member States’ complicity. The ongoing investigation of the European Parliament has proven that these practices are real and have toxic impact on competition and public budgets.
Country-by-country financial reporting (CbCR) and transparency on harmful tax dumping practices are crucial to fight opacity in the field of taxation. CbCR is already reality for banking, extractive and logging industries.
The European Parliament recently adopted draft legislation on shareholder rights including a proposal by the Greens/EFA to introduce a CbCR obligation for large corporations and full transparency on tax rulings. These transparency measures do not require the unanimous agreement of the member states and thus are a tool that can be immediately effective against tax evasion and corruption. It is now up to the Council to adopt legislation demanding transparency on taxes paid by all large companies in each country where they operate. Our study demonstrates the usefulness of the data. Looking at the results for Deutsche Bank the German government should end its resistance against public country-by-country tax transparency for large companies.