EU Tax Observatory Proposes 2% Global Wealth Tax on Billionaires in ‘Global Tax Evasion Report 2024’

EU Tax Observatory Proposes 2% Global Wealth Tax on Billionaires in 'Global Tax Evasion Report 2024'
EU Tax Observatory Proposes 2% Global Wealth Tax on Billionaires in 'Global Tax Evasion Report 2024'

In the ‘Global Tax Evasion Report 2024,’ issued by the European Union Tax Observatory, a noteworthy proposal takes center stage. The report advocates for the implementation of a global wealth tax set at 2% for billionaires, aiming to tackle the pervasive issue of tax evasion. This measure comes in response to the concerning trend where certain billionaires effectively pay an astonishingly low 0% to 0.5% of their wealth in taxes. The report not only puts forward this proposal but also underscores the urgent need to address the problem of tax evasion and its repercussions.

Under the proposed 2% global wealth tax, it is estimated that less than 3,000 individuals would be affected, yet it could generate approximately $250 billion in revenue. The report justifies this initiative by highlighting the relatively modest nature of the tax rate when juxtaposed with the substantial growth in billionaires’ wealth, which has seen an average annual increase of 7% since 1995, adjusted for inflation.

While the report acknowledges significant strides in international efforts to combat tax evasion, particularly through the automatic exchange of bank information, it remains vigilant about persistent challenges. Despite a remarkable reduction in offshore tax evasion through the automatic exchange of bank information, the report identifies two key factors contributing to its continued existence.

First, certain offshore financial institutions fail to comply with the requirement for the automatic exchange of bank information, often motivated by concerns about losing their customer base. Furthermore, these institutions seldom face significant threats or penalties from foreign tax authorities for their non-compliance.

Second, the wealthy elite who previously concealed financial assets in offshore banks have shifted their holdings to asset classes not covered by the automatic exchange of bank information, with a notable emphasis on real estate. In response, the report calls for an expansion of the range of assets subject to automatic exchange of information to effectively address this issue.

The report also casts a critical eye on the global minimum tax of 15% for multinational corporations (MNCs), which was adopted by 140 countries and territories in 2012. While initial expectations anticipated a 10% increase in global tax revenues, a proliferation of tax loopholes has diminished these projections by half. The report raises concerns about the “greenwashing” of the global minimum tax, whereby MNCs exploit ‘green’ tax credits related to low carbon transitions to significantly lower their effective tax rates, potentially falling well below the 15% minimum. For instance, U.S. green-energy tax credits are estimated to reduce U.S. corporate taxes by approximately 15%.

Additionally, the report shines a light on the proliferation of preferential tax regimes aimed at attracting wealthy foreign individuals. In the EU and the U.K., the number of these regimes has swelled from 5 to 28. These regimes offer tax exemptions or reductions to incoming residents while maintaining the standard income tax schedule for domestic taxpayers. This growing trend negatively impacts overall tax collection, as governments willingly forgo potential tax revenues, and it has detrimental spillover effects on other countries.