Greece and Offshore Tax Evasion

According to published reports, at the core of Greece’s financial problems is wide spread tax evasion, which is known in Greece as a “National Sport.”

It is estimated that Greece has an untaxed economy of up to 25% of GDP with up to $30B in uncollected taxes annually. Wealthy Greek investors hold tens of billions of dollars overseas in untaxed accounts.

In the BBC News Magazine 7/11/15 article “Did Greeks fail to pay 89.5% of their taxes“, a Washington Post 7/11/15 article reported that 89.5% of Greece’s taxes remained uncollected (compare Germany at 2.3%). So, is the problem that Greece taxpayers do not pay their
taxes?

The 89.5% tax evasion calculation came from an OECD report that relates to Greece’s historic tax debts (accumulated over the years) which were not written off by the Greek government as old “bad tax debts”.

As of 2010 Greece collected 70.3B Euros of taxes ($93.1B) which is 34% of their total gross domestic product (below the EU average of 38.5%, compare Italy: 41.7%, Germany 38.3%, UK 35.5%)

Greece has a large “shadow economy” i.e. money earned without income tax paid, and avoidance of VAT tax.

An IMF study found: between 1999-2010 the shadow economy in Greece made up 27% of their GDP (compared to 20.2% in other rich countries: Italy 27%, Germany 16%, UK 12.5%).

In Greece, one of four Euros earned are not declared, so the Greek govt. missed out on approximately $28B Euros ($31B) of tax revenue each year.

A 2015 report by US academics found tax-evading industries in Greece were lead by: law, medicine, engineering, and media.

The OECD recommended that Greece simplify their VAT system, close “tax loopholes” and create an independent tax collection agency free from government interference.

For a different perspective, consider the US where the IRS collects over $2.5 trillion per year in taxes (substantially greater than Greece’s $93.1B). So, despite all their critics, it appears the IRS is the most successful tax collection agency in the world. And America understands that democracy (which originated in Greece centuries ago) requires tax revenue to fund society. In other words, you cannot “drive a car which has no gas”. You cannot live in a democracy without “fuel for the car” (i.e.. taxes collected, and paid by taxpayers), which fund their government which is the “democracy”.

In 2015 the world is at a “tax inflection point”, Switzerland banks are accepting felony pleas to the US government after centuries of willful tax evasion and money laundering (of which they are at the epi-center), and historically great countries like Greece which for years allowed their wealthiest citizens to cheat on their taxes are now “paying the piper”.

For those wealthy US taxpayers that have up to a reported nearly $2 trillion offshore and undeclared in Switzerland and other tax havens, the Foreign Account Tax Compliance Act (FATCA) enacted in 2010, implemented in February 2015 when 104 countries with nearly 200,000 foreign financial institutions commenced disclosing up to an estimated 10m US taxpayers with undeclared foreign accounts and unreported income. For those US taxpayers who are lost in denial, in the words of Mark Twain: “Denial is not a river in Egypt”.

According to US Treasury Secretary, Jack Lew, the US tax system is “broken” and wide spread tax evasion in the US not only costs the US Government huge tax revenues, but in a vicious circle aggressive tax cheating, encourages more aggressive tax cheating which hurts our national budget.

The current reduced funding for the IRS (down approx. 10% over the last several years) further complicates this tax issue, as Lew stated: “For every $ that they don’t have to enforce our tax laws, it means we collect less tax revenue.”

And for those US taxpayers who volitionally cheat on their taxes, by stashing huge sums offshore, with the historical perspective that they “won’t get caught” because everyone “cheats on their taxes”, in the words of Bob Dylan “Its All Over Now, Baby Blue.”

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