Business

Global corporate tax rates stabilise after decades of decline

Corporate tax rates are showing signs of stabilisation after decades of governments slashing levies in a global competition to lure investment from multinational firms.

According to data released by the OECD, the average combined statutory tax rate in its sample of over 160 countries was unchanged at 20% this year. The stabilisation may also be a response to fiscal challenges countries face after vast spending programs during the Covid pandemic, it said.

The Paris-based organisation has led years of talks on setting a global minimum tax to put an end to a race to the bottom on corporate taxation regimes. While around 140 countries involved struck a deal in on a 15% rate in 2021, implementation has been delayed by domestic political constraints in many jurisdictions, including the US.

The OECD said its updated global tax statistics show the need for governments to swiftly bring the global deal into law. According to the country-by-country reporting, multinational firms’ revenues per employee are around $2 million in places where the corporate income tax rate is zero, but just $300 000 where there is some form of levy.

Similarly, transactions between companies controlled by the same multinational — known as related party revenues — also showed signs of profits shifting to countries with favourable tax regimes where foreign investment vastly outstrips the size of the economy. In those investment hubs, related party revenues account for 35% of total revenues of global companies, compared to an average of around 15% in high, middle and low income jurisdictions.

“While these effects could reflect some commercial considerations, they are also likely to indicate the existence of base erosion and profit shifting,” the OECD said.

© 2022 Bloomberg


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