Based on unprecedented international collaboration involving more than 100 researchers globally, the latest 2024 EU Tax Observatory report has published a comprehensive analysis of the effectiveness of measures to reduce global tax evasion and made a series of recommendations to address persisting issues.
A positive development identified in the report was that offshore tax evasion by wealthy individuals has shrunk overall, and this is in large part thanks to the automatic exchange of bank information. The report notes how this success proves that rapid progress can be made against tax evasion if there is the political will to do so.
However, despite this progress, the researchers note how some offshore tax evasion remains, either because of non-compliance by offshore financial institutions or limitations in the automatic exchange of banking information.
Another key finding in the report is that a persistently large amount of profits is still shifted to tax havens, amounting to $1 trillion in 2022.
This is the equivalent of 35% of all the profits multinational companies booked outside their headquarters country. And despite ambitious policy initiatives, profit shifting shows little sign of slowing.
Moreover, despite an agreement reached by 140 countries and territories in 2021 to implement a pioneering minimum tax of 15% on multinational profits, the report found that a growing list of loopholes has dramatically weakened the initiative.
The research also found that tax evasion – including what the report calls grey-zone evasion at the border of legality – is increasing domestically.
The report describes how global billionaires have effective tax rates that are the equivalent of 0% to 0.5% of their wealth thanks to the frequent use of shell companies to avoid income taxation and that, in many countries, no serious attempt has been made to address this situation.
The report makes six recommendations to address the issues, focusing on reducing the tax deficit of multinational companies and wealthy individuals. The report argues that reducing the tax deficits of multinationals and wealthy individuals can generate large amounts of government revenue and contribute to increasing globalisation’s social sustainability.
Other proposals include reforming the international agreement on minimum corporate taxation to implement a rate of 25% and removing the loopholes that foster tax competition.
The report also suggests introducing a new global minimum tax for billionaires equal to 2% of their wealth. It calls for creating mechanisms to tax wealthy people who have been long-term residents in a country and choose to move to a low-tax country.
The report also recommends creating a Global Asset Registry to fight tax evasion better.
The full report can be viewed here.