EU's Proposal for Global Billionaire Tax: Closing Loopholes and Increasing Revenue

The proposal for a "global billionaire tax" by the European Union addresses the issue of highly wealthy individuals using various methods, including shell companies and tax loopholes, to minimize their tax liabilities. The EU Tax Observatory suggests that imposing a 2% tax on the income of the world's wealthiest 2,750 billionaires could generate €236 billion ($250 billion) annually. This tax targets billionaires who employ strategies to conceal their income and property ownership.

The study highlights that some billionaires exploit tax loopholes, resulting in meagre effective tax rates, sometimes as low as 0% to 0.6% of their overall wealth. In contrast, individuals who do not use such tax breaks typically pay between 20% and 50% more in income taxes.

Often used for tax avoidance, Shell companies are seen as one of the primary methods that allow the wealthy to evade or minimize their tax obligations. The study emphasizes that real estate transactions, in particular, provide opportunities for the rich to avoid and evade taxes.

The global minimum tax on billionaires is similar to the international minimum tax on multinational companies agreed upon by 140 countries and territories in 2021. The global minimum tax on multinational companies aims to prevent them from using legal and accounting tactics to shift profits to low-tax jurisdictions. However, the Tax Observatory suggests that the multinational tax plan has weaknesses and may not generate the expected revenue due to existing loopholes.

Gabriel Zucman, the head economist at the EU Tax Observatory, believes that implementing base tax rates can address these issues by ensuring a minimum level of tax collection, regardless of the methods used to evade or avoid taxes. This proposal is part of a broader effort to address tax avoidance and evasion by the super-rich, which includes measures to increase tax transparency and fairness. The effectiveness and feasibility of such a global billionaire tax depend on international cooperation and consensus among governments.