In a report published this Monday, October 23, the European Tax Observatory, led by economist Gabriel Zucman, proposes a tax on billionaires and a tax on multinationals which could together generate nearly 500 billion dollars per year for the States. A report which also calls for a better fight against tax evasion. Interview with Quentin Parrinello political advisor of the European Taxation Observatory.
This report starts from an observation: “Tax evasion is not inevitable.” The proof is that the automatic exchange of banking information put in place less than ten years ago has made it possible to cut the concealment of offshore assets by the richest by three. Despite everything, it is clear that the wealthy are also the least taxed: the effective tax rate for billionaires around the world remains less than 0.5%. In France, we are even close to 0%.
European billionaires, for example, only pay $6 billion in taxes per year, assures the European Tax Observatory. But by taxing their assets at 2%, these tax revenues could increase sevenfold to reach 42.3 billion dollars – or 40 billion euros – in Europe. The Observatory therefore proposes a global minimum tax on the 2,800 billionaires. For the Nobel Prize winner in economics Joseph Stiglitz, who prefaced the report, these recipes “ are essential to our societies (…) at a time when governments must make essential investments in education, health, infrastructure and technology “.
Taxing 2% of their wealth would bring in $250 billion per year. We could double this amount by also really taxing multinationals. In 2021, a historic agreement was reached for a global minimum tax rate of 15% on the profits of multinationals, recall the authors. But in the meantime, numerous flaws have appeared and the Observatory’s economists estimate that applied as is, this agreement will only bring in a fraction of the expected tax revenues. They therefore offer a strict rate of 25% by eliminating the loopholes. Enough to replenish public coffers by an additional 250 billion dollars.
RFI: What made this report possible?
Quentin Parrinello: This report is based on new data made available by different tax administrations, which allowed us to have a much more detailed analysis of the dynamics and magnitude of tax evasion. This report summarizes the work of more than 100 researchers around the world to analyze the impact of international political actions in the fight against tax evasion over the last ten years.
When we talk about tax evasion, what exactly are we talking about?
If you ask a lawyer, you will have two definitions: the definition of tax evasion which is illegal, then the definition of tax optimization which is legal. In truth, it’s more complicated than that: there is a continuum between fraud on one side and optimization on the other, there is a gray area in the middle which is tax evasion. The role of politics is to ensure that this gray area is finer and finer so that we know precisely what is illegal and what is legal. In this report, we therefore take a very broad definition. We are interested in tax evasion which is completely illegal, but we also look at this gray area which has evolved over the last ten years.
For example ?
For example, we show that the illegal practice of not declaring “offshore” income placed in a tax haven has decreased significantly over the last ten years, thanks in particular to the introduction of the automatic exchange of banking information. To some extent, this measure put the brakes on banking secrecy and the share of untaxed offshore bank accounts was divided by three. Of course, there are still banks that are not playing the game, assets that are not covered and there are still efforts to be made but overall there has been progress on this.
If we talk about gray areas, we still see multinationals which, to avoid taxes, bring astronomical sums of profits to Ireland, the Netherlands or the Cayman Islands, without really having any real economic activity there. Faced with this, we can say like a certain number of political decision-makers for years: “It’s legal, so move on, there’s nothing to see. » We can also consider that this is not acceptable. This is what has enabled progress in the political debate over the last 10 years and the implementation of a certain number of measures. The most visible is this famous global minimum corporate tax which was decided in 2021 by more than 140 countries.
A tax which provided for a minimum tax of 15% on the profits of multinationals. In this report, you express your disappointment. For what ?
There was a lot of hope regarding this measure because, somewhere, philosophically, this tax is revolutionary. We can have a debate on the rate – we think that 15% is too low – but the systematic application of a minimum tax constitutes enormous progress. But what we have seen since the agreement was adopted in 2021 is the multiplication of loopholes, new exemptions which are put in place and which will allow multinationals to pay less than the 15% provided for on their profits. According to our calculations, the expected yield of this tax at the global level has been halved with the multiplication of these loopholes and these exemptions. Above all, this tax was intended to put an end to unfair tax competition between states. With these exemptions, this race to the lowest tax bidder will continue in other forms. We will no longer see competition on tax rates but an increase in tax exemptions and tax credits.
One of the proposals you make in this report is to move from a minimum tax rate to 20%. You estimate that this would bring in 250 billion dollars per year to the States, provided that these loopholes are eliminated. How ?
Ideally, a new international agreement is needed. It’s always better for all countries to agree on a rate, on the same practices, that means there are fewer flaws in the system. But if that doesn’t work, we also say that a certain number of countries can, unilaterally or in coalition, take the lead and apply a minimum tax rate that is more ambitious. If we wait for a new agreement at the international level, in some ways this amounts to giving a right of veto to tax havens. Especially since there are precedents: this famous minimum agreement on multinationals exists because, precisely, a certain number of countries, including France, have put in place unilateral measures: the Gafa tax for the French. Measures which pushed other less motivated countries to sit at the negotiating table.
All the measures that we have just mentioned concern large companies, multinationals. In this report you also talk about individuals, and billionaires in particular. You observe that the wealth of billionaires around the world is taxed very lightly: between 0 and 0.5%.
0 to 0.5% of their fortune, yes. In this report, we provide an overview of everything that has existed. If you like westerns, it’s a bit like The good, the bad and the ugly [Le bon, la brute et le truand, NDLR]. There is some good in recent measures, notably the attack on banking secrecy. There is something less good: the disappointed promise of the minimum tax. And then there is the downright bad: the fact of having had no significant action at the international level in terms of taxing billionaires.
In all countries where data is presented, billionaires pay less taxes than the rest of citizens. This is not a coincidence: it’s simply that billionaires are very good at structuring their wealth in such a way that it does not generate taxable income. Once again, we are in the gray zone of legality since they do this, in particular via shell companies, family holding companies whose simple aim is to avoid tax. For us the simplest way to deal with it is to put in place a minimum tax for billionaires. We propose 2%. In 2023, it would bring in 250 billion euros. So we estimate that this is a measure which, even if it only concerns around 3,000 people, is not anecdotal.
How do we apply a minimum tax rate to billionaires when we know that they are by definition almost everywhere in the world?
Here again, ideally, there needs to be a global agreement. We think that the next G20 summit in Brazil could be a very good opportunity to move things forward. We feel that there is an interest in Brazil to put this subject on the agenda. But if that doesn’t work, we can certainly move forward unilaterally or collectively, with a certain number of countries. For example, we are proposing an anti-exile tax. Its principle would be that if you have lived in a country for a very long time and you leave for tax reasons, you continue to pay this tax in the country you have just left. With the automatic exchange of banking information, we believe that the technical means to implement such a measure exist.
France is often presented as a country where the rich are particularly taxed. In fact, we read in your report that French billionaires are taxed less than in the United States, for example.
Yes, absolutely. A few months ago, Gabriel Zucman, the director of the Observatory, even spoke of France as “ of a tax haven for the ultra-rich “. What is very striking is that there are indeed tax rates for the average French person which are higher than in many other countries, but this is not at all the case for billionaires. . On average, around half of a French person’s pre-tax income goes into taxes: it’s half as much for billionaires even when we look at the taxes they pay indirectly via the companies they own.
They pay very little tax on earned income, since it represents a very marginal part of their income, but they also pay very little tax on capital income and that’s a bit counterintuitive because billionaires receive a lot of dividends. I am thinking of Bernard Arnault who this year received 3 billion euros in dividends from LVMH. But where an individual shareholder would pay 30% taxes, it is the “flat tax”, Bernard Arnault, using a family holding company, pays almost no taxes. So we are facing a real breakdown in equality. This is not only bad for democracy, but it is also a factor in exacerbating inequalities.
You write : “ tax evasion is not inevitable, it is above all a political decision “.
We have the impression that for 30, 40 years, political decision-makers accepted tax evasion as a side effect of globalization that would be unassailable. In this report we show that this is false, we see it with the introduction of the automatic exchange of information: who could have imagined ten years ago that Swiss banks would give their customers’ information to the tax authorities in France, the United States, China or elsewhere? Today, this is the reality, because there was the political will to move forward on the subject. So today when we talk about subjects like higher taxation of multinationals, or a tax on the wealth of billionaires, for some, it may seem totally utopian but tax evasion is not inevitable, nor a law of nature: tax evasion can be tackled as long as there is political will.