Billionaires are using legal gray areas, bordering on the edge of legality, to avoid paying almost no income tax. The EU Tax Observatory is calling for a tax on the assets of the super-rich. Germany has the second-highest tax burden among OECD countries. On average, a married couple with children must pay 40.8% of their income in taxes and social security contributions. Only in Belgium is the burden higher at 45.5%. However, billionaires pay little tax, according to the EU Tax Observatory, an independent research institution of the Paris School of Economics (PSE). According to the first report of the EU Tax Observatory, the approximately 3,000 wealthiest individuals use legal gray areas to significantly reduce their tax burden. These are usually special holding companies that exist only to shift certain types of income, such as dividends from company shares and stocks. The economists around Gabriel Zucman explain that billionaires can avoid certain forms of income tax almost completely through these methods. Their effective tax rates in the European Union (EU) are therefore often between 0 and 0.6%. The economists are therefore calling on the participants of the upcoming G-20 summit in Brazil in November 2024 to discuss a global minimum tax. A possible solution is an annual wealth tax of two percent, which is only levied on the wealthiest people in the world. According to the estimate of the EU Tax Observatory, the 2,756 known billionaires would have to pay an additional 250 billion euros per year with such a tax.
The holding companies, which are often only mailbox companies, are frequently the formal owners of luxury properties in expensive cities such as London, according to the researchers at the EU Tax Observatory. This means that the real owners can remain anonymous and avoid paying taxes. This method of tax avoidance has hardly been combated so far. The economists are therefore calling for a global minimum tax to be discussed at the G-20 summit in Brazil in November 2024. The idea is based on the agreement of 2021 between 140 countries and territories to set a global minimum tax rate of 15% on the largest multinational companies. As Zucman explains, minimum tax rates are the most effective way to close loopholes in existing tax systems because they guarantee that the tax cannot fall below a certain amount.
