Most of the wealth and finances illicitly exiting European countries’ economies solely for the purpose of cheating on tax goes to other European countries, a new tracker launched by the Tax Justice Network at an event at City St George’s, University of London revealed.
The estimated US$673 billion illicitly crossing European countries’ borders in this way every year adds little to no real local economic value to the places it goes to but is turbo-boosting the hoarding of extreme wealth by the world’s superrich. Wealthy individuals and multinational corporations operating in Europe get to keep an extra US$100 billion a year that otherwise would have been paid as tax to European governments.
While countries’ losses to tax cheating multinational corporations and the superrich are well known, the new tracker now makes it possible for countries to identify where the illicit money exiting their economies is going – and where the secretive wealth and finance illicitly entering their economies is coming from. For virtually all European countries on the tracker, other European countries are consistently identified among the top destinations for illicit flows. Of the total US$673 billion illicitly crossing European countries’ borders, over US$377 billion (56 per cent) is directed towards other European countries.
The findings starkly contrast a common misperception of Europe as a victim of primarily palm-fringed island tax havens on the one hand, and an inflictor of tax losses to primarily the global south on the other. Europe is its own worst tax victim and tax abuser, warns the Tax Justice Network.
The findings have significant implications for the ongoing global negotiations on a world-first UN tax convention expected to come into effect next year, says the Tax Justice Network’s Head of Research Miroslav Palanský:
“European countries stand to gain the most from the UN tax convention but are astonishingly refusing to engage on it, all because they mistakenly see themselves as trying to hold onto a position as winners of a global tax fight – when really they’re the losers of a mostly European tax fight. Europe’s outdated dog-eat-dog mentality on tax is blinding it to the fact that the UN tax convention offers a win-win for everybody. European governments must start listening to the evidence or their people will continue to suffer the loss of billions in public money every year.”
A recent study by the global union federation Public Services International (PSI) and the Tax Justice Network concluded that countries would collect US$500 billion more in corporate tax a year from multinational corporations without increasing taxes by following through on the UN tax convention’s commitment to change where multinational corporations pay tax.
The UN tax convention commitment to scrap the 100-year-old “pay-where-you-say” approach to taxing multinational corporations for a modern “pay-where-you-play” approach would see EU countries collect €57 billion more a year – enough to quadruple spending on climate adaptation in agriculture, energy and transport.
European countries that received grants under the Marshall Plan to help rebuild post-war Europe, including the UK, would collect the inflation-adjusted equivalent of what they received at the time every two years.
The new tracker allows users to examine individual policy scenarios and see what impact they would have on individual countries. For example, if Norway goes ahead with the more ambitious proposal for its planned introduction of public country by country reporting for multinational companies, it could expect to see a reduction in illicit outflows due to profit shifting of more than US$300 million per year.
Beyond Europe, the US, Singapore and Hong Kong also feature for some European countries among the top destinations for finance and wealth illicitly exiting European borders.
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