LONDON: Eight of the world’s top industrialised nations lowered their corporation tax rates last year or announced plans to do so, according to a leading thinktank.
In the Organisation for Economic Cooperation and Development’s annual report on tax changes around the world, the thinktank said Japan, Spain, Israel, Norway and Estonia had all lowered their tax rates for corporate profits in 2015. Meanwhile, future planned reductions had been announced by Italy, France, Japan and the UK, reports the Guardian.
The OECD said the 2015 downward trend was accelerating as governments around the world emerged from the aftermath of the 2008 banking crisis and began using their tax policies more aggressively to chase GDP growth.
In particular, countries were vying with one another to offer foreign multinationals the most attractive tax rate in an effort to attract investment. “With regard to corporate income tax, rate reductions had generally slowed down after the [2008 banking] crisis but seem to be picking up again,” the report said. “The trend seems to be gaining renewed momentum.”
The OECD findings may make uncomfortable reading for many politicians who have recently claimed to be leading the battle to make big global corporations pay more tax. A string of revelations about ultra-low tax bills among many of the world’s largest businesses – including Apple, Vodafone, Starbucks and Google – has led to widespread public anger. The OECD suggested cuts in corporation tax were being partially offset by rises in other taxes such as VAT, fuel and car tax. Many tax justice and inequality campaigners have pointed out this trend hits hardest at poorer individuals. Tax Justice Network notes it “redistributes wealth upwards”.
“Governments make up shortfalls [from corporation tax cuts] by levying higher taxes on other, less wealthy sections of society, or by cutting back on essential public services, so tax ‘competition’ boosts inequality and deprivation,” Tax Justice Network has said.
OECD experts said lower corporation tax rates may indeed boost GDP but were also likely to heap pressure on other nations to follow suit and lower the rate of tax they levied on corporate profits. Critics of tax competition have called this a “race to the bottom”.
The OECD average tax rate for corporate profits has declined from 32% in 2000 to 26% in 2008. The rate of decline then slowed — the average reaching 25% last year — but now looks to be quickening once again, the OECD said.
Meanwhile, the average rate of VAT – a tax that falls hardest on the poor – has climbed from 17.6% in 2008 to a record high of 19.2% at the start of 2015.