Global Tax Evasion: How Multinationals Avoid Billions in Taxes

Today, we will discuss taxes, inheritance tax, and tax evasion.

Global Tax Evasion: How Multinationals Avoid Billions in Taxes

A few key points that you will learn from this story:

  • Tax Evasion in the European Union
  • Tax Evasion in the U.S. and Canada
  • Inheritance Taxes
  • How Italians Played the System
  • The Swiss Model
  • Corporate Tax Havens
  • The Bigger You Are, the Easier It Is to Evade Taxes
  • Serge Gainsbourg’s Legendary Protest
  • Where’s the best place to live, tax-wise?

Tax Evasion in the European Union

The European Union created the European Economic Observatory at some point. It is a fairly new institution where many economists, statisticians, and mathematicians are trying to publish some atypical statistics that do not exist in the National Statistical Institutes of governments.

And what does the European Economic Observatory tell us? Well, in 2022, tax evasion reached the beautiful sum of 1,000 billion euros—that's one trillion. To put it into perspective, one trillion is the combined gross domestic product of Denmark and Belgium, or about four times Greece’s GDP. This tax evasion is only calculated for listed companies.

This isn't about petty tax evasion—cigarettes, cannabis, and all that. That’s another chapter. We're talking only about the big multinational firms managing to "optimize"—in quotation marks—€1,000 billion in the European Union alone.

Tax Evasion in the U.S. and Canada

If we add the United States and Canada, tax evasion shoots up to more than 3.5 trillion euros in a single year. And it's still growing. From 2010 to 2022, tax evasion increased by 45%. Sure, the economy is doing better, and the stock markets are skyrocketing, but still, what can we do?

I have to tell you, it's not just about clever accountants and lawyers helping big multinationals "optimize" their taxes. The state itself creates laws that end up helping the evaders.

Let me start with the famous Berlusconi story. Berlusconi introduced what's called a tax amnesty. Now, having lived in Italy for many years, I can tell you that wealthy Italians—whether they owned small, large, or even multinational businesses—used to funnel their money into Swiss banks.

At one point, and I’ve been in Switzerland since 2000, Swiss banks even offered a service to transport your suitcase full of cash to Como, Italy, and bring it to Chiaso, Switzerland, for a fee of 0.5% of the amount.

In other words, the evader didn’t take any risks. They handed over the suitcase of cash in Italy, and the bank transported it across the border. When the money arrived in Switzerland, the bank would open an account for you, minus the 0.5% fee.

This wasn’t just a casual operation—this was happening at a very high level. Of course, this practice has stopped now because Switzerland had to sign various agreements with the European Union, so they can no longer indulge in such schemes.

Inheritance Taxes

Moreover, there is another variant of what we do with inheritance taxes. Now, you know very well that Bernard Arnault or Berlusconi made their succession during their lifetime.

Because if they hadn't, at the time they leave it in their will to the children, the kids would have had to pay 45%. You're going to say it's normal for them to pay 45%, because, you see, smaller ones also pay 10%, 11%.

So, if you in France or Italy have a house worth 500,000 and leave it to your child after death, the child pays 11% of the value of the house. So, they must have this money; otherwise, they're forced to sell the house to pay the estate tax.

On the other hand, if you have 20 billion, you have to pay 45%. Perfectly normal. Normal so far. Only, there are tax advisors and laws, like in France, where, if you break a very large company into smaller pieces, you no longer pay at the rate of 20 billion; you pay at the rate of 200 million for the pieces you broke it into—10, 20, 100 smaller pieces, which is called dismemberment.

Démembrement in French.

And with démembrement, you already pay half because the tax goes down. But even dismantling is not enough for you, and then you take advantage of the pacte du tronc. Pacte du tronc—what is it?

It's a pact to ensure, God forbid, that the French multinational company stays French. So foreigners can’t buy it. And they gave the multi-billionaires the chance to cut back.

So if someone like Bernard Arnault, who has 200 billion, dies tomorrow and applies both dismantling and the second part, the pacte du tronc, he ends up paying just 5%. Sure, 5% of 200 billion is still a lot, but you must realize it’s only 5%, compared to the poor guy who left his kid a house worth 500,000, and the kid pays 11%.

How Italians Played the System

Now, in Italy—where they say every Italian has a molecule of tax evasion in their DNA—there was a need for, as I mentioned earlier, a tax amnesty. Do you know how many tax amnesties Italy has granted since World War II? 38.

Most of them were handed out by Berlusconi.

What does amnesty mean? Well, you’ve got money sitting in Switzerland, but you can't use it because you can’t bring it home to buy a house in Venice, Rome, or Florence.

So, to stop this money from sitting idle in Swiss banks and encourage reinvestment, Berlusconi said, “Alright guys, if you declare the money you have in Switzerland and bring it to Italy, you can pay just 5% on the respective amount and be done with it.

That was the first tax amnesty. The second one was at 6%. The third was 3.75%. And what did the Italians do?

I tell you that I have personally known such characters in my life. So, they said, "How much money have I taken to Switzerland so far? Let's say 10 million. Well, yes, but I will make another 10 million in the next 3-4 years."

And they declared that they have 20 million in Switzerland. You’ll tell me, "But they were supposed to show 20 million in Switzerland, right?" Well, they just had to show an account with 20 million, so they started moving the money from one person to another.

"Give me your money for 3 days, I’ll make the account statement of 20 million, I’ll take it to the Italian tax office." That means they paid tax on more money than they actually had.

Great success in Italy with how much money the Italian state took. But no, the evasion didn’t stop, it continued. Because until they reached the amount of 20 million that they had declared, they still had to carry black money to Switzerland.

And they did.

After the 2008 crisis, an American—by the way, I recommend his book The Devil’s Banker, written by Birkenfeld—came from the United States and got a job at UBS. And at UBS, they gave him the historic mission to bring black money from the United States to Europe, wherever he could.

The Swiss Model

You must know that a banker who brings clients to Switzerland, even though Switzerland tells you they manage the money well, most of the time, you lose. If you win, you earn between 1% and 5%, but it’s a safe bet.

And it’s a system that doesn’t crack. As you saw when UBS went bust, they did what they did, but no depositors suffered. They bought UBS with state money on Credit Suisse, but no one went bankrupt. There’s no declared bank failure like Lehman Brothers or the ones in Silicon Valley.

Good. Now, Birkenfeld still kept bringing in money and asked UBS for more money. UBS told him, "We don’t give it to you. We’ll give you 0.25% on all the money you bring, just once. After that, we do what we want, fool the client, and so on."

Don’t think Swiss banks are honest. Not by any means. But this guy, angry, went to the IRS—the American tax authority—and complained about UBS. And that’s how the biggest scandal on the face of the Earth was created.

And why did Birkenfeld report UBS to the IRS? Because in America, there’s another very interesting law. If you’re a whistleblower—let’s say I go and find out George Soros didn’t pay taxes on $100, and the U.S. government manages to recover that $100 from him, or even $50, whatever how much—they give me 10% of what the IRS collects from Soros as a reward for reporting him.

And you should know that UBS, blocked with frozen accounts due to the American government cracking down hard on them, had no choice but to settle with a $1.1 billion fine to close the case for all the Americans who had accounts there.

Starting in 2009, no Swiss bank wants to deal with Americans anymore. You’re made to sign, under your own responsibility, not only that you’re not an American citizen, but that you’ve never even held a Green Card in your life, nor have you ever been registered with the IRS—nothing.

If they hear you’re American, it's goodbye—they won’t open your account. After the UBS-IRS scandal, all American clients disappeared from Swiss banks. So, what happened?

Well, Birkenfeld ended up making $110 million—more than he ever made during his entire career at UBS. Even though he was part of the whole scheme, he only served about 9 months in a cushy prison and wrote a book while he was there.

I recommend The Devil’s Banker—it’s exceptional. He made about $40 million off the book. It’s safe to say he earned more from blowing the whistle and writing the book than he ever did as a banker. Is that fair? Who knows. But let's get back to us.

Corporate Tax Havens

So far, I haven’t talked about Panama Papers-level tax evasion, or the opening of companies in tax havens. But, if you want to know, you’re well aware that Mr. Elon Musk, angry after the court ruled against him and denied him the $56 billion payout, is threatening to move Tesla's Delaware headquarters to Texas.

But why are all American multinationals and Big Tech companies in Delaware? Simple: lower taxes. And don’t think there’s anyone from Microsoft, Amazon, or Google actually working there. There aren’t even lawyers. Just some mailboxes.

The headquarters are technically in Delaware, but Apple's real home is in Cupertino, and Musk is in Texas. Now, Musk is moving from Delaware to Texas—not because Texas is better tax-wise, but because he was convicted there and wants to escape Delaware's jurisdiction.

In Texas, no one is going to condemn him anymore. He’s already held a shareholder meeting—yes, you know the one—where the shareholders approved his bonus in shares worth nearly $56 billion. So, these fiscal engineers with their havens in Panama, the Bahamas, or the British Virgin Islands don’t even factor into the kind of calculations I’m talking about right now.

Maybe I’ll write an article on the Panama Papers later. But for now, know that everyone is trying to pay the lowest taxes possible. It’s crazy, but companies like Amazon, worth over $2 trillion, end up paying less in taxes than General Motors, which isn’t even worth a tenth of Amazon. And General Motors, in turn, pays less than some small chain of 5-6 supermarkets in America. How’s that for fair?

The Bigger You Are, the Easier It Is to Evade Taxes

Because, as you’ve seen, the bigger you are, the easier it is to evade taxes. And this happens, obviously, with the direct contribution of governments and the laws they pass.

The European Union, when it comes to inheritance taxes, income taxes, or any kind of taxes, is anything but uniform. Why isn’t the euro a uniform currency? For the simple fact that it doesn’t have the same value or interest in Belgium, Bulgaria, and Greece.

You’ve probably heard the stories, like Gérard Depardieu—the French actor now hated by many in France—who fled to Belgium and then to Putin's Russia to establish residency and a tax haven so he could stop paying the sky-high taxes in France. That’s a thing, sure. But the most iconic protest against these taxes came from Serge Gainsbourg. And I’d like to end this story with his story.

Serge Gainsbourg’s Legendary Protest

Serge Gainsbourg, the legendary singer—famous for Je t’aime... moi non plus—the man who had some of the most fascinating women by his side, like Jane Birkin and Brigitte Bardot, was also a French composer and musician.

He went on a live talk show on TF1, the TV channel with the largest audience in France, and said right to the camera, in front of millions of citizens and socialists, “They are taxing me at 74%. It doesn’t seem fair to me that the state should take 74% of my hard-earned money.

Today, that will not happen. But what did happen?

He took out the 500-franc note, the largest note in France at that time—this was until '83-'84—and set fire to it live, saying it was illegal to burn money. He kept going until only 26% of the note was left and said, "Look, that's all I have left of the 500 francs I earned yesterday." It was a monumental scandal. He got sued—Serge Gainsbourg set money on fire live, and so on.

But things have changed. That 74% tax no longer exists, and even though the French now pay around 20-25%, all the big singers and actors are still not satisfied with this level of taxation and move to Russia.

Where’s the best place to live, tax-wise?

I’ll tell you: Switzerland. And here’s why. The Swiss state and tax authorities treat you like a customer. They go after you to behave nicely. Why? Because their interest is not to block your accounts, not to give you fines, and not to shut down your company, but to make sure you pay.

And there’s something else. The Swiss state has a very interesting law: if you don’t pay your taxes on time, the penalty is only 5%.

But interest rates have been at minus 0.75% for a while. So, 5% was a lot. People who kept their money in the bank—if you had over 100,000 francs—you had to give 1% to the bank, meaning they took money from your account.

If you had more than 100,000 francs in cash, on an account or deposit, and didn’t have government bonds, that’s why people started buying government bonds with negative interest. Better to lose 0.20% than lose 1%.

Here’s the thing: if you give the tax office more money than you owe, when you ask for it back, the tax office gives you 5%. I mean, the Swiss system is simple: you overpaid? I’ll give you 5%. You underpaid? I’ll take your 5%.

This system works beautifully, so Switzerland always has more tax money than it needs. Sure, they pay you interest, but at the same time, people prefer to pay taxes rather than keep the money in the bank and get hit with the 100,000-franc rule.

But there’s one more thing. In Switzerland, if you paid too much in taxes and want your money back tomorrow, well, tomorrow you get it.

The Swiss state, if you’ve paid more tax, and later lose after you initially won, gives it back. They do whatever it takes to keep your business running. And they’re your friend.

The fact that Swiss taxes are designed with the taxpayer in mind, treating you like a customer and helping you pay, just like any customer in a restaurant, makes Switzerland the most taxpayer-friendly country.

Even though the taxes in Switzerland aren’t quite as low as you might think. First of all, on dividends, we pay 38%, which is not an amount to be ignored. The easiest country in terms of taxation, especially for inheritances, in the European Union is Romania.

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