Study of tax evasion and hidden assets in international financial centers

Establishing triangular structures to shift taxes is mainly done by ultra-wealthy individuals (UHNWI) who have the means to do so. They invest about half of their wealth in financial assets, followed by real estate and cash. Using financial structures, such as trust funds,tax is evaded and assets remain off the radar. This is evident from our research on the monitoring of hidden wealth by individuals in international financial centers and the effects of the introduction of Common Reporting Standards (CRS) and Directive 2014/107/EU (DAC2) on the concealment of wealth by individuals. We conducted this research on behalf of DG TAXUD.

Hidden wealth was estimated at 8.6 trillion Euros in 2018, with financial centers identified based on their GDP. The study additionally showed that the introduction of DAC2/CRS has had an effect and made it more difficult to hide wealth.

All taxpayers are required to declare their income in tax returns. Tax authorities often have good visibility of domestic income due to national reporting requirements. Foreign income, however, is less known to authorities. Authorities rely on cross-border information exchange for this purpose, as set out in the DAC2 agreements for EU member states and CRS (Common Reporting Standards) for exchange with countries outside the EU. Previous research showed that individuals in international financial centers (IFCs) in particular are likely to hide their wealth. That prompted this research.

Using literature review and interviews in all EU27 countries, we gained insight into the qualitative (and quantitative) factors of individuals hiding assets. For this research, we interviewed national authorities, academics, civil society organizations, journalists, FIU and other key actors.In addition, we conducted a number of in-depth case studies to gain deeper and broader insights into a number of member states.

For more information, read the full research report.