New Report Calls for Global Minimum Tax on Billionaires

Subject: Economy

Section: Fiscal Policy

Key Points:

Report titled ‘Global Tax Evasion Report’ prepared by the EU Tax Observatory, a research laboratory established in 2021 with expertise in international tax issues has called for a global minimum tax on billionaires’ wealth.
The report studies tax avoidance in view of the rising income and wealth inequality, high public debt in the post-COVID-19 context, and the significant need for government revenue to address climate change and fund essential services like healthcare, education, and infrastructure.
The report investigates the effects of international reforms adopted over the past 10 years, such as the automatic international exchange of bank information, and the international agreement on a global minimum tax for MNCs, among other issues.
- The automatic exchange of information was introduced in 2017 to fight offshore tax evasion by wealthy individuals. Countries exchanged information on the deposits of non-residents to foreign tax authorities as part of the common reporting standard.
- In 2021, a group of 136 countries, including India agreed to an OECD proposal to set a minimum global tax rate of 15% for MNCs and sought to make it harder for them to avoid taxation.

Key findings of the report:

Firstly, offshore tax evasion by wealthy individuals has decreased over the past decade, the report says, attributing it to the automatic exchange of bank information.
But it also highlights that offshore tax evasion still happens due to non-compliance by offshore financial institutions and limitations in the automatic exchange of bank information.
Not all assets are subject to the automatic exchange of bank information, allowing individuals to exploit these gaps, especially in the realm of real estate.
Report finds a considerable amount of profit shifting to tax havens, with no apparent impact of policies so far.
US multinationals are responsible for around 40% of this profit shifting, with Continental European countries being the most affected by this evasion.
It finds that global billionaires have effective tax rates equivalent to 0% to 0.5% of their wealth due to the frequent use of shell companies to avoid income taxation.
The report highlights the emergence of new forms of aggressive tax competition that negatively affect government revenues.
Over the past 15 years, many countries have introduced preferential tax regimes aimed at attracting specific socio-economic groups perceived as particularly mobile.

Recommendation:

Governments should put a global minimum tax on billionaires, which could raise $250 billion annually.
If levied, the sum would be equivalent to only 2% of the nearly $13 trillion in wealth owned by the 2,700 billionaires globally.