One trillion dollars. The sum is staggering, equivalent to the global gross domestic product of Denmark and Belgium combined. It represents the profits that the world's largest corporations transferred to tax havens in 2022 alone, according to the report on global tax evasion published on Monday, October 23 by the European Tax Observatory. Even efforts by governments to tax multinational corporations more effectively in the future are unlikely to fundamentally change the situation.
The Observatory, which was established in March 2021 and co-funded by the European Commission, is hosted at the Paris School of Economics. In this publication, it has presented the results of groundbreaking work carried out by more than 100 researchers worldwide. Its ambition: "to take stock of the progress made in the fight against tax evasion over the last ten years, and of what remains to be done," said economist Gabriel Zucman, its director.
The subject is hotter than ever. With the Covid-19 pandemic having exacerbated both inequalities and public deficits, governments are now exploring all avenues to replenish public treasuries and respond to a dual emergency: supporting households faced with inflationary shocks linked to international tensions, and freeing up resources to finance the "green" energy transition. "If citizens don't believe that everyone is paying their fair share of taxes – and especially if they see the rich and large corporations not paying their fair share – then they will begin to reject taxation," stated Joseph Stiglitz, winner of the 2001 Nobel Prize in Economics, in his introduction to the report. The risk is that this "glaring tax disparity undermines the proper functioning of our democracy; it deepens inequality, weakens trust in our institutions, and erodes the social contract."
In the big picture presented by the authors, there is "good, bad and very bad" news, summarized Zucman. First, the "good" news: offshore tax evasion by wealthy individuals and households – i.e., bank deposits, shares and other financial securities that are held abroad and not declared – has fallen sharply, thanks to the automatic exchange of bank information introduced in 2017 across around a hundred countries. More specifically, offshore wealth is estimated at $12 trillion in 2022, or 12% of global GDP. Today, a quarter of this wealth is not declared to tax authorities – and therefore escapes taxation – compared with over 90% in 2007. "This success shows that rapid progress can be made against tax evasion if there is the political will to do so," stated the authors.
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