Income tax and the proxied average tax rate of the collective European co-operative banking sector and the entire banking system

This research letter aims to proxy total income tax as well as the average tax rate of 16 European co-operative banking groups from 13 European countries on the one hand, and the aggregated banking system of all these countries on the other for the period 2000-2023. To this end, data on tax expenses and pre-tax profits have been collected from multiple data sources. Dividing aggregated income tax by aggregated pre-tax profits yield proxies for average income tax rates of the collective co-operative banking sector (henceforth, CBS) and the entire banking system (henceforth, EBS).
Our research reveals that both banking sectors posted the highest pre-tax profits and consequently also made the largest income tax payments in the last year of the sample period (2023). CBS recorded a pre-tax profit of more than EUR 64 billion and paid around EUR 15 billion in income tax in 2023. The resulting proxy for its average tax rate is nearly 23 per cent. For EBS, we computed a pre-tax profit estimate of EUR 294 billion and an income tax estimate of about EUR 63 billion, implying a proxied average tax rate of about 21.5 per cent.
For the entire time span 2000-2023, the proxied average tax rate equalled 26.7 for CBS and 24.8 for EBS. The standard deviation of this rate is notably lower for CBS (4.8) compared to that of EBS (8.4), i.e., the proxied average tax rate of CBS is more stable over time. Furthermore, our computations suggest that the share of CBS in total income tax of all banks (i.e., CBS plus EBS) is somewhat higher (22.7) than its share in total pre-tax profits of all banks (21.5). When the whole period is split into two 12-year subperiods, this overall picture does not change significantly. We also found that in nearly 55 per cent of all observations (i.e., 384), the approximated tax rate of individual co-operative banking groups exceeded that of the entire banking sector in their respective countries by at least 2 percentage points. Taken together, our findings hint at differences in the orientation and business models between CBS and EBS.