Corporate tax revenue remains high despite falling rates

Image: OECD

Taxes paid by companies remain a key source of government revenues, especially in developing countries, despite the worldwide trend of falling corporate tax rates over the past two decades, according to a new report from the OECD.

The new OECD analysis Corporate Tax Statistics shows that across the 88 jurisdictions for which data is available, corporate income tax revenues on average accounted for 13.3 percent of total tax revenues in 2016, up from 12 percent in 2000.

The share of corporate tax revenues is even more significant in developing countries, representing 15.3 percent of all tax revenues in Africa and 15.4 percent in Latin America and the Caribbean.

Across OECD countries, the rate is only 9 percent.

As a share of gross domestic product, the corporate tax intake increased from 2.7 percent in 2000 to 3 percent in 2016, even though headline corporate tax rates have fallen considerably during the past two decades.

If federal and state taxes are combined, average statutory corporate tax rates dropped from an average of 28.6 percent in 2000 to 21.4 percent in 2018.

While nearly two-thirds of 94 countries for which data is available had tax rates of 30 percent or more in 2000, this number had plummeted to less than one-fifth of jurisdictions in 2018.

During the 18-year period, 76 countries reduced their corporate tax rate, 12 maintained the tax rate and only six increased it.

There are another 12 jurisdictions, who, like the Cayman Islands, either have no corporate tax regime or a corporate income tax rate of zero.

The OECD noted in its analysis that corporate income tax revenues are dependent on many factors and solely focusing on headline rates can be misleading.

“For example, jurisdictions may have multiple tax rates with the applicable tax rate depending on the characteristics of the corporation and the income. Progressive rate structures or different regimes may be offered to small and medium-sized companies, while different tax rates may be imposed on companies depending on their resident or non-resident status,” the OECD said. “Some jurisdictions tax retained and distributed earnings at different rates, while some impose different tax rates on certain industries. Lower tax rates are often available for firms active in special or designated economic zones, and preferential tax regimes offer lower rates to certain corporations or income types.”

Another factor influencing corporate tax revenues is the definition of the corporate tax base, the organization said.

An OECD database captures how standard components of the corporate tax base, such as depreciation and allowances for corporate equity, reduce the effective tax rate.

In addition, targeted tax incentives, such as for research and development expenditures and intellectual property income, are widely used to reduce the corporate tax burden for specific activities, the OECD said.

As a result, effective tax rates were on average 1.1 percent lower than statutory tax rates in 2017 across 74 jurisdictions.

The organization uses its database to support its Base Erosion and Profit Shifting initiative.

In 2015, the OECD reported that tax base erosion and profit shifting to low tax jurisdictions had caused government revenue losses of between $100 billion and $240 billion, a figure that would be equivalent to between 4 percent and 10 percent of corporate tax revenues.

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