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The top of an iceberg

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Gro Skaaren-Fystro
Skaaren-Fystro is a special advisor in Transparency International Norway.
TAX / Panama Papers, Paradise Papers, LuxLeaks and FinCEN provide a clue to the global scope of "tax planning".

Aggressive tax planning in private international companies is not necessarily illegal, but it is unethical and deeply problematic, as it means the loss of large revenues that should have benefited the community.

Transparency International EU has just released a report showing how some of the largest banks in the EU and Storbritannia seeks to avoid high taxes in their respective home countries by shifting registration to low or zero tax jurisdictions – tax havens.

The most important findings in the report are that 31 of 39 banks use such jurisdictions, and 29 of these achieve high profits in countries where they have no employees. UniCredit, HSBC and Société Genérále top the list for this way of organizing their business, with Cayman Island and Malta being the two most used jurisdictions.

The profits of Spanish banks abroad are 18 times higher than in
home country.

There are large differences between the revenues at the banks' head offices and their foreign operations. For example, the profits of Spanish banks abroad are 18 times higher than at home. Such covert operations may indicate that banks are speculating in registering parts of their business abroad in order to avoid paying taxes. The report makes reservations about the conclusions that can be drawn due to a lack of transparency about the banks' operations in these countries. There may be legitimate reasons to organize the business in this way.

Transparency is perhaps the most important tool for preventing and detecting economic crime and unethical practices. New transparency standards and legislation have made it possible for companies to take a closer look at the seams. Furthermore, the major document revelations in recent years, such as Panama Papers, Paradise Papers, LuxLeaks and most recently FinCEN, have been important in directing the spotlight on financial secrecy and in giving a clue to the global scope.

Corporate Tax Tracker

Since 2015, EU banks have been required by law to report income, taxes and the number of employees country by country. Thus, it has become possible to collect data on companies that have previously been covered by a lot of secrecy. Researchers have reviewed such data for the past five years and established an overview on the portal Corporate Tax Tracker. The portal shows in a clear way how much the banks earn, and how much they pay in taxes in the countries in which they operate. But this research also shows that a number of countries do not enforce country-by-country reporting. In addition, only the banks and the extractive industries are subject to these regulations.

Thus, the findings in the report on European banks may only show the tip of the iceberg, and this may be an indication of a much larger problem related to aggressive tax planning not only in the banking sector but also in other sectors.

Weaknesses in the legislation

The analysis of the country-by-country reports shows weaknesses in the legislation as a standardized format is not required for the companies' reporting, nor is it always easy to find in the reports themselves. Another weakness is that the figures from the banks vary. It is not always clear what time period the figures cover, and some banks do not divide the figures by jurisdiction as required. In this way, the reporting does not become comparable, nor does the transparency become meaningful.

It is necessary to rectify these weaknesses in order for country-by-country reporting to form a good basis for risk analyzes and statistics.

Norway introduced legal requirements for country-by-country reporting in 2017 with a more standardized reporting system than the EU has. The reports in Norway contain information on income and tax by country, and they describe the activity in each individual country in which the company operates. Norwegian legislation should be extended to cover all industries and tightened by closing the possibility of moving profits out of a country before it is taxed?

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