Roberto Musacchio on recent investigations showing that the growth of tax evasion in the European Union – evasion leading to tax gaps which exceed the healthcare spending of several EU Member States, ‘often by considerable amounts‘.
Italy has the European primacy of tax evasion: 190.9 billion euros compared to 125.1 in Germany and 117.9 in France, out of a total EU of 823.5 billion euros per year according to the estimates of the researcher Richard Murphy, director of Tax research Llp, in his work on the tax gap presented in January 2019, estimates also assumed by the European Parliament. Calculated per capita, Italy remains first with 3,156 euros but is followed close by Denmark with 3,027 and Belgium 2,676 euros compared to an EU average of 1,634.
According to Murphy, in several EU countries the tax gaps exceed the healthcare spendings. Murphy also reports other significant indications which allow us to read tax evasion compared to the tax levels of the various countries, showing how the average taxation on GDP in the EU was the 36.1%, resulting between the Danish maximum of 46.5 and the Irish minimum of 23.4 (2015). Fifteen countries are above the average and thirteen below. Among them, Britain before the Brexit with its 33.1 compared to 38.4 in Germany and 43 in Italy.
But reading the available data offers other keys. For example, the Germans have the European record for the amount of wealth held in countries with offshore characteristics: as much as 331 billion euros, according to estimates by the EU Commission.
Tax evasion, which however is also tax avoidance or, as defined in a resolution of the European Parliament of 26 March 2019, "aggressive tax planning" – that is, the search for the best way to pay less taxes in which companies in particular practice – has many faces. The resolution of the European Parliament, dedicated to financial crimes, tax evasion and tax avoidance, has the merit of looking at systemic elements and in particular at the behavior of states and companies. Aggressive tax planning, for example, according to empirical estimates referring to 2015, is worth between 50 and 70 billion per year in Europe, if we consider only the amounts lost for the transfer of profits. If we then consider the customized tax agreements for big multinational companies and the inefficiencies in collections, another 160-190 billion euros are added.
The resolution denounces the so-called "letterbox companies", that is, registered in a jurisdiction solely for purposes of tax avoidance or evasion and without a significant economic presence that, it is said, could be easily identified. According to the International Monetary Fund (IMF), the estimate of the worldwide loss of revenue due to the erosion of the tax base and the transfer of profits and relating to “tax havens” is 400 billion US dollars per year for OECD countries (The Organisation for Economic Co-operation and Development), one per cent of their GDP, and 200 billion for developing countries, 1.3% of their GDP.
And again, the European Parliament stresses that almost 40% of the profits of multinational companies are transferred every year to tax havens around the world, where some countries of the European Union seem to record the greatest losses due to this transfer, as 35 % of the total comes from EU countries, followed by developing countries (30%). It is then underlined that about 80% of the profits transferred from numerous Member States is destined to a small number of EU states or passes through them. By doing so, multinational companies can pay up to 30% less tax than their national competitors and therefore these practices of planned aggression distort competition for national companies, especially small and medium-sized enterprises.
But beyond “aggressive tax planning”, the European Parliament report notes that there is a general reduction in nominal corporate tax rates, which at EU level have fallen by about 10 percent points, going from an average of 32% in 2000 to 21.9% in 2018. Moreover, there are discrepancies between the estimates of the effective tax rates of large companies, often based on tax forecasts, and the effective tax paid by big multinational companies. In addition, the "traditional" sectors pay on average an effective tax rate of 23%, while the digital sector pays about 9.5%.
So, it’s not just about behaviour, but a systemic trend.
Originally published at Left magazin nr. 40/2020 (Italian, full version)