Germany is the biggest loser when it comes to profit transfers to tax havens. But according to international tax expert Gabriel Zucman from UC Berkeley, the eurozone's biggest economy could change this quickly.
DW: Experts in Germany estimate that the country loses €50 billion to €70 billion ($58 billion to $81 billion) every year as a result of illegal tax evasion. What about legal tax avoidance?
Gabriel Zucman: Our estimates with Thomas Torslov and Ludvig Wier is that Germany loses €17 billion annually because of the artificial shifting of profits by multinational firms to tax havens.
What makes Germany the biggest loser in the EU, when it comes to profit transfers to tax havens?
In terms of the fraction of its corporate tax revenue lost due to the artificial shifting of profits to tax havens, Germany is the most heavily affected country in the developed world. The incentives to shift profits out of Germany are high, because the corporate tax rate is relatively high - around 30 percent when you take municipal taxes into account.
But this does not imply that Germany should cut its rate. Instead, it should tax multinational companies differently - namely by apportioning their global profits proportionally to where they make their sales. So if Apple makes $100 billion in profits globally and 10 percent of its sales are made in Germany, 10 percent of its global profits would be taxable in Germany. This would put an immediate end to corporations' tax avoidance, because they cannot move their customers to Bermuda!
Gabriel Zucman insists that Apple should be taxed according to where its customers are and where it sells its products
Your research revealed that the EU loses about 20 percent of its corporate tax revenue in tax havens - making the European Union the main loser in terms of tax avoidance by big corporations worldwide. But, according to your findings, the EU is also home to some of the biggest winners in the game, namely Ireland, Netherlands, Luxembourg. What should be done to change that?
We must change the way we tax multinational companies - namely by apportioning their global profits proportionally to where they make their sales. Any country can do it unilaterally: Germany could decide tomorrow that this is how it's going to tax multinationals from now on. It would make Ireland, Luxembourg and the Netherlands irrelevant. This is the most important policy priority right now.
Your research is data-based. If you as a researcher can do the maths, why can't tax authorities do the same?
As researchers we have the luxury to be paid to do research all day long. People in tax authorities have lots of other things to do — most — importantly collecting taxes, and they have limited resources.
The Paradise Papers include the names of more than 120 politicians from almost 50 countries. Does that mean the political class is part of the problem?
I think real change is possible. We've seen progress over the last 10 years with the automatic exchange of bank information. What we need is mobilization from civil society to make progress on the taxation of multinationals. We need to apportion the global profits of multinationals proportionally to where they make their sales.