Tax evasion by businesses and individuals represents a significant loss of revenue for governments around the world. Gabriel Zucman, director of the European Tax Observatory, publishes the annual global tax report on October 23.
The fight against tax evasion is progressing. In 2007, the richest declared only 10% of the wealth they placed outside their country. Today, it’s 75%. However, up to half of the profits made abroad by multinationals escape tax. Gabriel Zucman, director of the European Tax Observatory, estimates this overall shortfall at $1,000 billion for states in 2022. He proposes a tax of 2% of the fortune of the richest, the “club billionaires” which has fewer than 3,000 people worldwide, including 75 French. This tax would bring in 40 billion dollars at European level.
franceinfo: Today you are publishing the annual global tax report (link in English). There are positives, negatives and very negatives. We’ll start with the glass half full. It concerns individuals and the most fortunate. Money hidden in Switzerland in an opaque bank account is over.
Gabriel Zucman: There has been great progress on this issue of hiding assets in tax havens. Since 2017, an automatic exchange of banking data has been put in place, a form of international cooperation, which was considered perfectly utopian around fifteen years ago. Previously, it was very easy to hide fortunes in accounts in Switzerland or abroad. Now it’s much more difficult. It is estimated that this new form of international cooperation has reduced offshore tax fraud by more than half. So it’s a big step forward, but not all the problems have been resolved.
Bankers in Switzerland, Singapore or the Cayman Islands are expected to report everything they know about your income, assets, etc. to the relevant tax authorities. Of course, it would be a little naive to think that these bankers, who helped their clients practice tax evasion for decades, are all now perfectly honest. We are not there yet, but still, we must welcome this progress because it shows that tax evasion is not some kind of law of nature. On the contrary, it is a public policy choice. And we can, if there is the political will, fight against tax evasion and make progress in a relatively short time.
We will now address the question of companies and especially the largest of them, the multinationals. Part of their profits escape tax: up to half of the profits made abroad for American companies. You estimate this overall shortfall at $1,000 billion in 2022. Is this figure increasing?
This is the less positive aspect of recent developments. The relocation of profits to tax havens continues and this great tax evasion by multinational companies represents a mass of profits of the order of 1,000 billion dollars. These profits made in France, in large European countries, in developing countries and in the United States are recorded, from an accounting point of view, in tax havens where they are taxed at zero or almost zero rates. Roughly half of that $1 trillion ends up in European tax havens. It could be Ireland, the Netherlands, Luxembourg or Switzerland. So the problem is really at the heart of Europe.
Is the problem the rivalry between the different countries? Is it harmful?
The problem is that we have taken a certain number of measures to try to limit this artificial relocation of profits to tax havens. But so far, they have not borne fruit. In 2021, there was much hope when 140 countries agreed on the principle of a minimum tax of 15% on the profits of multinational companies. It was really a giant step, even if the rate proposed was significantly lower than what SMEs have to pay, because it was the first time that there was an international agreement which set a minimum rate of taxation.
This agreement comes into force in the European Union from January 1, 2024. However, a big problem since 2021, this agreement has been partly emptied of its substance due to the multiplication of exemptions and tax loopholes which, compared to which we could hope for in 2021, will reduce the expected revenue from this minimum tax by approximately half.
We come to the black point of this report. It concerns the club of the richest individuals, of whom there are less than 3,000 in the world, including 75 French people. And there, the figures are dizzying: overall, they hold, you say, more than 12,000 billion dollars. But today, they pay almost no wealth tax. How is this possible and how to fix it?
When we look at the effective tax rate of some 3,000 billionaires in the world, we realize that it is very low: between zero and 0.5% of their fortune. It’s possible because when you have a very large fortune, it’s actually quite simple, too simple unfortunately, to organize that fortune so that it generates little or sometimes no taxable income. Billionaires use shell companies, organizing their assets through companies and holding companies. There are plenty of examples in France. For example, if you take the Arnault family, shareholder-owner of LVMH in 2023: they received three billion euros in dividends from the 2022 profits of LVMH in France. In principle, an average shareholder pays 30% tax on dividends, which is the flat tax. But in the case of the Arnault family, the dividends are paid not directly to individuals, but to shell companies, and they are not subject to personal income tax.
So you are proposing to implement a 2% tax on the fortune of these 3,000 billionaires?
This would be the simplest way to resolve the problem and it is the main recommendation made in this report. We need a minimum tax on the world’s billionaires. We are proposing a 2% tax. It would still be more than what they pay today. And at the same time, it would remain modest compared to the growth rate of the fortunes of billionaires which has been on average 7% per year since the 1990s.
The political debate is absolutely not ripe, particularly in France on this subject.
It has nevertheless evolved and for example, what strikes me is what happened in the United States, in 2019-2020. During the Democratic primary campaign, Joe Biden campaigned against the wealth tax plans of Bernie Sanders and Elizabeth Warren. And once elected, he introduced into his own budget a plan for a minimum tax on billionaires. So we see that in fact, attitudes can evolve quite quickly on this issue.