A new study by the European Commission estimates European Union member states lost US$50.7 billion (46 billion euros), about 0.3% of GDP, in tax revenue in 2016 to international tax evasion by individuals.
The tax paper notes that 2016 also represented the average amount of evaded tax for the analysed period from 2001 to 2016.
While offshore tax evasion by individuals is among the most visible tax topics in the media, the figures contrast with a report released earlier this year by academic and tax campaigner Richard Murphy on the European tax gap.
The report, commissioned by the Socialists and Democrats Group in the European Parliament, put the annual tax gap in Europe resulting from tax evasion at between $850 billion and $1 trillion.
It concluded that compared with estimates of corporate tax avoidance of between $60 billion and $210 billion in lost tax revenue or cross-border tax evasion by the wealthy, domestic tax evasion across the spectrum of the population in Europe’s shadow economy was by far the biggest problem.
The EU Commission paper estimated the amount of offshore wealth and then used assumed rates of non-compliance reported by EU member states or academic literature to arrive at the level of international tax evasion.
Traditional estimates of offshore wealth are based on the gap between international portfolio assets and liabilities, which in theory should balance but in practice do not. This leads analysts to conclude that much of the gap results from the underreporting of offshore assets.
The European Commission estimates a total of $7.8 trillion in global wealth is held offshore. This 2016 figure equated to 10.4% of global GDP at the time. The annual average for the 2001 to 2016 period is $5.8 trillion.
The tax note highlighted that the increase in global offshore wealth over the last years of the study was mainly driven by non-OECD countries. Offshore wealth held by Chinese residents alone increased from $90 billion in 2001 to $1.9 trillion in 2016 – the largest share of global offshore wealth.
However, the commission study cautioned that the figures may be the result of Hong Kong’s emergence as major renminbi trading centre and not necessarily due to non-compliant behaviour.
Offshore wealth held by EU residents, in contrast, was $1.6 trillion in 2016 and averaged $1.5 trillion during the 16-year period. Germany, France, the UK and Italy make up more than 65% of EU-28 offshore wealth on average over the study period.
In 2015 and 2016 the study’s results show a slight decrease in offshore wealth, which the authors believe is consistent with a possible impact of enhanced cross-border tax reporting under the US Foreign Account Tax Compliance Act and the Common Reporting Standard.