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EU report calls for 2% global wealth tax on billionaires to combat evasion

The Paris-based EU Tax Observatory estimated that 2% global wealth tax on world’s wealthiest individuals could raise close to $250 billion annually

EU report calls for 2% global wealth tax on billionaires to combat evasion
[Source photo: Chetan Jha/Press Insider]

Identifying that tax evasion is enabling billionaires to enjoy effective tax rates equivalent to 0% to 0.5% of their wealth, a study commissioned by the European Union has called for a 2% tax on the world’s 3,000 wealthiest individuals.

The Paris-based EU Tax Observatory estimated in the report titled ‘Global Tax Evasion Report’ that such a measure could raise close to $250 billion annually. This measure is expected to address both evasion and generate funds to battle the rising challenges of climate change, pandemics, and inequality.

Economist Joseph Stiglitz, in a forward to the report, said that glaring tax disparity “undermines the proper functioning of our democracy; it deepens inequality, weakens trust in our institutions, and erodes the social contract.”

“The revenues that would be collected if we made a dent on evasion and avoidance are critical to societies, as countries around the world face the challenges of climate change, pandemics, and inequality, and as governments have to make essential investments in education, health, infrastructure, and technology,” Stiglitz wrote.

The EU Tax Observatory is a collective of economists created three years ago as part of the European Union’s efforts to combat tax abuse. It was co-funded by the EU, the Norwegian Agency for Development Cooperation, and the Research Council of Norway.

The study evaluates international efforts to combat tax evasion, citing significant progress in some areas. The automatic exchange of bank information, in particular, has reduced offshore tax evasion by a factor of three over the past decade. However, some individuals who used to hide financial assets in offshore banks have exploited loopholes by shifting holdings to non-covered assets, most importantly real estate, the report says.

The study identifies real estate as a particularly serious blind spot in international information exchange and says that it may be used for money laundering, tax evasion, escaping international sanctions, or other financial crimes. One of the major limitations of the current system of automatic information is that it does not cover certain assets, giving tax evaders incentives to invest in such assets, including real estate and works of art held in “freeports.”

According to the data available, close to $500 billion are owned by foreigners in six cities — London, Paris, Singapore, Dubai, Cote d’Azur, and Oslo — an equivalent to more than 10% of total real estate in these areas. In Dubai alone, $136 billion of real estate, 27% of the value of total Dubai real estate, is held by foreigners. Indian nationals own about 20% of the value of foreign-owned properties in Dubai.

Noting the methods of avoiding taxes, the report says that an equivalent of 35% of all the profits booked by multinational companies outside of their headquarters country — $1 trillion in 2022 — is shifted to tax havens. Billionaires use personal wealth-holding companies to avoid income tax in many countries, a practice that may not be illegal but can legitimately be seen as closer to evasion.

The report proposes an evolution of the law, including international law to battle tax evasion. “Current laws and treaties cannot be the final word on the issue of how to regulate taxation in an interconnected world. The law will keep adapting, new treaties will be written, as has happened throughout history,” it said.

The report recommends the international agreement on minimum corporate taxation to implement a rate of 25% and remove the loopholes in it that foster tax competition. It also calls for a Global Asset Registry to fight tax evasion.

Proposing a new global minimum tax for the world’s billionaires equal to 2% of their wealth, the report says the move would address the evasion and generate nearly $250 billion from 2,756 individuals. From 260 billionaires in South and Southeast Asia, it is estimated that $17.3 billion can be raised.

The number of taxpayers affected by the proposal is very small, and the 2% tax rate for these taxpayers would still be very modest but the revenue potential is large due to the concentration of wealth at the top of the distribution and the low current tax rates of billionaires.

The report defends the proposal by highlighting the modest nature of the tax rate in light of billionaires’ wealth growth, which has averaged 7% annually since 1995, adjusted for inflation.

ABOUT THE AUTHOR

Javaid Naikoo is a senior correspondent at Press Insider. A seasoned and analytical journalist, Javaid covers economy and policy from New Delhi. He has reported on politics, business and social issues in the past, and also has a keen interest in photojournalism. His compelling words and art have appeared across domestic and global publications. More

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