Proactive Investors - Super-rich individuals have been using shell companies to avoid income tax, which is on the “border of legality” and should result in the world's 3,000 richest people paying a 2% levy on their wealth, according to a report by a research group that helps advise on EU tax policy.
The report found that billionaires have been pushing the law to its limits by putting their earnings, including the dividends from companies, through dedicated holding companies which serve no other purpose than to reduce the tax burden.
“These holding companies are in a grey zone between avoidance and evasion… To the extent that they are created with the purpose of avoiding the income tax, they can legitimately be seen as closer to evasion,” the report by the EU Tax Observatory said.
Created three years ago, the Paris-based group is funded by the EU and operates with the aim of combatting tax abuse. Its report found that with some of the current loopholes in place, the super-rich can avoid certain types of income tax and end up paying between 0% and 0.6% of their total wealth.
Wealthy individuals not using these loopholes can find themselves paying as much as 50% in tax.
“Real estate continues to provide ample opportunities for the rich to avoid and evade taxes,” the report added, noting how some of the richest individuals purchase luxury houses in areas like London through shell companies.
In addition, shell companies are not affected by methods used in many countries to tackle tax avoidance, such as the automatic exchange of bank information.
“To date no serious attempt has been made to address this situation, which risks undermining the social acceptability of existing tax systems,” the report said.
The research group is calling on global leaders to discuss a 2% global wealth tax for the world’s richest at the G20 summit in Brazil next year, which it said could raise US$250 billion a year.