The shifting of profits to countries with particularly low corporate taxes deprives the German state of revenue of EUR 5.7 billion per year. This is estimated by the ifo Institute in a study that it has now published in ifo Schnelldienst. "For the first time, we have been able to evaluate information from the country-by-country reports that large multinational companies have had to submit to the tax authorities since 2016," says ifo President Clemens Fuest, one of the co-authors.
The study covers large and smaller German multinational enterprises (MNEs) as well as the German subsidiaries of foreign multinational enterprises. The new country reports of the large multinationals show that only 9 percent of their total global profits are attributable to subsidiaries based in low-tax countries. The lion's share of these profits remains in Europe, with non-European tax havens playing only a minor role. "According to our estimates, 62 percent of profits in low-tax countries can be traced back to real economic business, for example in countries such as Switzerland or Ireland. But 38 percent are the result of profit shifting to avoid taxes. As a result, the German tax authorities lose tax revenue of around 1.6 billion euros every year," Fuest continues. The profits of small multinationals and the German subsidiaries of foreign multinationals were estimated in the same way.
While the subsidiaries of large German MNEs in high-tax countries made a profit of around 41,000 euros per employee, the figure was around 130,000 euros in European low-tax countries and 73,000 euros in non-European tax havens. These figures show that there is a clear imbalance in the distribution of profits on the one hand and the distribution of the production factors of labor and capital on the other. A look at the average profit tax burden suggests that this imbalance is a result of tax arrangements. At 10 to 11 percent, average profit taxes in low-tax countries are just half as high as in countries that do not belong to this group.
For the first time, the project used information from the country reports of the 333 largest German multinational corporations. German multinationals with a global turnover of at least 750 million euros publish the countries in which they operate, the profits generated by their subsidiaries there, how much tax they pay, how many employees they have and the value of their property, plant and equipment.
