The governments of the G20 countries will sign an agreement in order to fight Base Erosion and Profit Shifting (BEPS) when they meet this Sunday. The expectations are high – the OECD estimates a worldwide increase of corporate tax revenues by up to 10 percent. However, tax revenues in countries like Germany are unlikely to increase. The opposite scenario seems to be more realistic.
Ever since the OECD announced an expected annual tax revenue increase between USD 100 and 240 billion or 4 and 10 percent worldwide as an effect of the BEPS Project, politicians have been eager to implement the new regulations. However, the reckoning by the OECD is based on questionable assumptions. In its final report, the organization complains about the unsatisfying database and the resulting uncertainty concerning the extent of profit shifting by multinational companies.
According to the OECD estimates, Germany would see an increase in corporate tax revenues between 3 and 7 billion euros. The BEPS analysis assumes that all countries benefit from the increasing tax revenues in the same way. Yet, for countries like Germany – where plenty of multinationals are headquartered – the consequences might be completely different.
Even if companies like Amazon or Google would eventually pay more taxes in Germany when referring strictly to the sales volume for allocating the profits, for most German multinational enterprises it will be the other way round: The 30 biggest listed German companies earn every fourth euro in Germany – and are expected to earn even less on the domestic market in the future. At the same time, these 30 corporates pay more than a third of their taxes in Germany. There are even cases of single companies, for example in the car industry, in which the taxes paid in Germany are higher than in the rest of the world.
If the BEPS Project was implemented, German multinationals would pay about a fourth of their taxes in Germany. This would have a negative impact of more than 2 billion euros on the German public budget – considering only the 30 biggest listed companies. Since the German industry consists of more than 30 listed companies, the total effect will be probably twice or three time as high. In conclusion, Germany will hardly become a winner in the BEPS Project . Against the background of the BEPS discussion, politicians should not raise too high expectations in terms of tax revenues.
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The Global Tax Expenditures Database (https://gted.net/) collects national reports on tax expenditures for 101 countries for the period from 1990 to the present.