A global minimum tax on billionaires equal to 2% of their wealth could raise close to $250 billion (around €235.6 billion), the EU Tax Observatory estimated in a report released on Monday.
ADVERTISEMENTThe measure would affect fewer than 3,000 individuals, but the group says the revenue could help governments to invest in key areas such as health care, education, and climate policies.
According to the Observatory’s calculations, billionaires' personal tax in the United States amounts to about 0.5% of their wealth.
In France, a country with relatively high taxes overall, this figure is as low as 0%.
Partially due to evasion methods, the groups says that “the effective tax rates of billionaires appear significantly lower than those of all other groups of the population’’.
The report highlights a number of ways that wealthy individuals avoid paying social contributions.
Certain forms of tax evasion are illegal, such as failing to declare offshore income, yet some billionaires may simply choose to move to countries with lower tax rates.
Other evasion techniques can fall into a legal grey zone, such as the use of shell companies to gain favourable tax treatment.
Shell companies are businesses that don’t own any assets or run any operations.
Whilst they do have legitimate uses, they can often be used to hide taxable income.
Corporate loopholes
The Observatory also outlines the failure of a 15% minimum tax on multinational corporations, introduced in 2021 by more than 140 countries and territories.
Whilst the policy was initially expected to increase global corporate tax revenues by close to 10%, the report says this number has halved due to a number of loopholes.
The estimated revenue from this levy in 2023 has fallen from $270 billion to around $136 billion.
As not all countries agreed to the 15% rate, the Observatory explains that companies are incentivised to move to tax havens.
A vicious cycle of tax avoidance then begins, as foreign investment encourages these states to continue implementing low rates.
Another means of dodging the minimum rate are tax credits, given to companies for activities such as conducting research and investing in local factories.
This system means governments can reduce tax rates below the 15% mark whilst still complying with the 2021 agreement.
International cooperation to tackle evasion
Despite highlighting regulatory weaknesses, the Observatory’s report also holds some positive takeaways.
Offshore tax evasion has fallen in the last decade, partially thanks to the automatic exchange of bank information between countries.
ADVERTISEMENTBefore 2013, households owned the equivalent of 10% of world GDP in financial wealth in tax havens globally. The majority of this was undeclared to tax authorities.
Today, offshore household wealth accounts for the same proportion of global GDP, but the Observatory estimates that only around 25% of it evades taxation.
The group says that this figure shows how “rapid progress can be made against tax evasion if there is the political will to do so”.
It states that tax evasion is not an inevitability but linked to policy choices.
