Huge Variations Seen In Global Corporate Tax Rates

by Robert Lee, Tax-News.com, London

03 October 2011

The tax burden faced by businesses varies greatly from country to country, with a wide tax gap between ‘low tax’ emerging economies and the majority of ‘high tax’ developed nations, according to new research.

The study, published by the international accounting and consultancy network UHY, shows that huge disparities now exist between countries on the amount of tax they take from businesses, with the tax burden more than three times greater in highest versus lowest taxed major economies. The survey was compiled through a study of tax data in 21 countries across UHY's international network, as well as key emerging economies.

Post-tax profits were calculated for businesses making annual statutory pre-tax profits of USD100,000, USD1m and USD100m. For example, for those highly profitable businesses in the USD100m category the difference in the amount of tax collected between the highest taxing country surveyed - Japan - and the lowest taxing - Ireland - is USD29.5m. This, UHY says, means that the same business in Japan would pay over three times more tax than the equivalent business in Ireland. For business with profits of USD100,000 per annum, the difference in the amount of tax collected between the highest taxing country, Brazil, and Ireland, the lowest taxing, is USD21,500, demonstrating that a business in Brazil would pay nearly three times more tax on its profits than its Irish equivalent.

In the league tables produced by UHY - showing the tax rates for companies with pre-tax profits of USD100,000, USD1m and USD100m - Dubai (UAE) and Estonia are the lowest tax countries, charging 0% on company profits. Of those states levying corporate tax, Ireland sits bottom of each table, charging a flat rate of 12.5%. Canada is the second lowest taxing country for those companies with profits of USD100,000, charging 15%. Romania levies 16% on those with over USD1m profits, and Russia is relatively low in the latter two tables, with a 20% charge. The UK is near the bottom of the lower profits table, charging 20%, but creeps further toward the middle of other two tables, charging 24% and 26%.

Brazil remains near the top in each case, charging 34% corporate tax. Japan levies 31% on profits of USD100,000 but 42% in each of the two other instances, placing it at the top of the latter two tables. Germany, charging 32%, is also one of the 'high tax' countries in all cases, with France in the top five for companies earning USD1m and USD100m, charging 33% and 34% respectively. The USA is the second highest taxed country for those with profits of USD1m and USD100m, levying 34% and 35%.

According to UHY, many countries have been reducing their corporate tax rates in a bid to become more competitive and attract highly mobile multinational businesses. The research highlights the need for some countries to work harder to become more attractive to businesses, which are are less constrained by geography than at any time in history.

John Wolfgang, chairman of UHY, said: “The difference between countries in the amount of tax they take from business profits is quite staggering. It will shock many business leaders that, among the G8 countries, both the USA and Japan impose higher corporate taxes on some businesses than EU countries like France and Germany, which are traditionally seen as high tax economies. Most non-G8 countries now impose a flat rate of tax regardless of the amount of profit generated. Most of the G8 – the exceptions are Germany, Italy and Russia – have progressive tax models with the effective tax rate increasing with profits."

"While this allows them to help smaller companies to grow, it does make their tax systems more complex. High corporate taxes can deter business investment, which can hinder economic growth. Over the last decade, many EU countries have slashed corporate taxes, leaving some BRIC nations, such as Brazil and India, with surprisingly high tax in comparison. Companies are increasingly mobile and are able to switch tax domicile with relative ease. This has put governments in a quandary, as they seek to boost tax revenues in order to shore up public finances. Many countries have opted to resolve this problem by increasing personal taxes while reducing corporate tax rates. Once a major economy slashes corporate tax rates, however, it puts pressure on others to take similar measures to remain competitive”, Wolfgang concluded.

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