European banks have billions in tax havens, Cyprus absent from haven list

Major European banks have placed €20 billion, around 14 per cent of their overall profits and a figure which has remained unaltered since 2014, in countries listed as tax havens, a study by the EU Tax Observatory has shown.

Cyprus, often mislabeled and wrongly thought of as a tax haven and more accurately described as a low tax jurisdiction, is naturally absent from this list.

The study has taken into account the financials of 36 systemic banks across eleven European Union member states between the period of 2014 and 2020.

These are important banks, considered systemic in their jurisdictions, and too big to fail.

Regarding the study’s tax haven list, this includes the following jurisdictions: Bahamas, Bermuda, the British Virgin Islands, Cayman Islands, Guernsey, Gibraltar, Hong Kong, Ireland, Isle of Man, Jersey, Kuwait, Luxembourg, Macao, Malta, Mauritius, Panama, and Qatar.

To determine its tax haven list the study took into account two main criteria: each country’s effective tax rate, meaning the total tax rate paid by a given company on its overall income, and the profitability of employees, which looks at a company’s net income after it has been divided by its total number of employees.

The study found that approximately 25 per cent of the profits made by the banks included in the research are placed in countries that have an effective tax rate of less than 15 per cent.

Another key finding in the research is the different approaches to tax haven placement of funds deployed by the banks in the study, with some banks usage of tax havens being as high as 58 per cent, while others having a zero per cent usage.

The mean percentage of these banks’ profits being booked in at least one of the aforementioned countries is 20 per cent.

The study also found that productivity in the list of countries listed as tax havens is ‘abnormally high’, as described by the authors themselves.

This is reflected in a profit of around €238,000 per single employee. The difference with these banks’ domestic countries is stark, with employee profitability in their original countries being approximately €65,000 per employee.

“This suggests that the profits booked in tax havens are primarily shifted out of other countries where service production occurs,” the study stated