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ECONOMY

Shadow economy costs €454bn says economist

Shadow economies could be costing the EU up to €454 billion in tax losses according to Linz University economist Friedrich Schneider.

Shadow economy costs €454bn says economist
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Speaking to the Financial Times, Professor Schneider from the Johannes Kepler University Linz, said that although measures could be taken to crack down on the shadow economy, it could not be completely dismantled.

“One could crack down 20 to 30 percent on shadow economy with clever policies but not more,” he said.

Tax losses of €454 billion would equate to 8.6 percent of total annual tax revenue, and national losses range from 33 percent of total revenue in Bulgaria to 4.4 percent in Austria.

Most of the losses are a result of undeclared work but about a third are thought to be from cash heavy businesses under-reporting their sales.

The figure is the latest of several estimates of tax losses due to shadow economies, a number that is hard to pin down due to the illicit nature of the transactions.

An earlier report released by Professor Schneider in January stated that the estimated EU tax losses from the shadow economy in 2009 was €864 billion.

In 2013, some experts estimated the losses could have exceeded €1 trillion. The EU economic commissioner Pierre Moscovici said earlier this month that EU member states should crack down on those who avoid paying VAT after a study suggested €168 billion was lost in 2013 this way.

Scandinavian countries, where cash payments have significantly fallen, are also less likely to see wages paid in cash in comparison with central and eastern European countries.

In comparison Britain has seen a rise in the number of notes in circulation, which authorities say is due in part to tax evaders holding back large amounts of cash that are then released into the economy.

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ECONOMY

Key divisions of Austria’s property giant Signa file for insolvency

The two most important property divisions of real estate giant Signa -- whose vast portfolio includes New York's iconic Chrysler building -- are filing for insolvency, the company announced Thursday.

Key divisions of Austria's property giant Signa file for insolvency

The filings mark the latest troubling developments at Signa, exacerbating the spectacular downfall of self-made Austrian tycoon Rene Benko.

Benko — one of Austria’s richest men — founded Signa in 2000 and grew it into a property and retail conglomerate. But as the sector is hit by higher borrowing costs and rising building material prices, a growing number of developers are filing for bankruptcy.

The Signa Prime Selection division — which includes properties such as the Berlin shopping gallery KaDeWe — on Thursday initiated self-administrated insolvency proceedings at Vienna’s commercial court, the company said.

A second subsidiary, Signa Development Selection, will also file Friday to restructure under self-administration, it said.

BACKGROUND: Austria property giant Signa to file for insolvency

Credit rating agency Fitch had already downgraded the Signa Development unit earlier this year.

“It is well known that external factors have had a negative impact on business development in the real estate sector in recent months,” the statement said. “Despite considerable efforts in recent weeks, the necessary liquidity for an out-of-court restructuring could not be secured to a sufficient extent, so that SIGNA Prime Selection AG has applied for restructuring proceedings with self-administration,” it added.

At the end of November, Signa’s holding company filed for insolvency after Benko announced he was handing over the chairmanship of the company’s advisory board to a German restructuring expert.

According to the company’s website, the assets of Signa Prime Selection are valued at €20.4 billion. Prime Development owns assets worth €4.6 billion, the website states.

Several Signa projects, including the construction of a landmark high-rise in the German city of Hamburg, have ground to a halt. Recently, Signa has been looking at selling its partial ownership of the
Chrysler building.

READ ALSO: Can foreigners buy property in Austria?

The leading German department store chain Galeria Karstadt Kaufhof, which Signa purchased in 2019, filed for bankruptcy in 2020 amid the coronavirus pandemic, and the chain decided to close 52 stores at the start of the year.

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