Dr. Simeon Djankov:

Before I answer that question, let me go back and restate my comment on corporate income versus consumption. My statement was that this is the world trend. It is not that I am recommending it, I am just saying it is the trend of what is happening. The reason countries are relying more and more on consumption-based taxes and excise taxes is precisely that they are not able fully to capture the corporate income taxation. My view and the view of our report is that we should not just look at corporate income taxation as taxing the corporations but we should also look at their shareholders.

There has been this premise in public finance, not just among politicians but also among economists, that while the company may be situated and producing in Ireland, the shareholders can receive their dividends wherever they are. In other words, there is no link between shareholders and production. In fact, there is a link, especially in this new wave of companies where the main shareholder is typically also the majority owner, for example Amazon, Google and so on. It is not that there are 100 million owners with tiny shares; there are two or three owners that have 60% to 80% of the corporation. Currently, these owners basically do not pay taxes here or anywhere in the world. They park their money in small island economies, mostly in the Caribbean. An idea of ours that is lately getting a lot of attention in academic research is that just as countries like Ireland tax the corporation, they should be entitled to tax a share of the money that goes to the shareholders themselves. Basically, dividend taxes should also be paid here. It is called "tax on location". It does not matter where the shareholder is based; what matters is where the money is made, not just for the company but also for themselves. We calculate that for the 500 largest corporations, if dividend tax was proportionately shared where the money is, in fact, made and not where the shareholder lives, the European Union as a whole annually would have about €2.2 billion additional revenue, just from shareholdings. That money is significant enough to then ease the burden on consumption taxes but currently we do not have it. It is just parked somewhere.