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Corporates' Tax Contribution Falling, Says OECD Report

by Ulrika Lomas,, Brussels

03 December 2015

Corporate tax revenues have been falling across OECD countries since the global economic crisis, putting greater pressure on individual taxpayers to ensure that governments meet financing requirements, according to new data from the OECD's annual Revenue Statistics publication.

Average revenues from corporate incomes and gains fell from 3.6 percent to 2.8 percent of gross domestic product (GDP) over the 2007-14 period. Revenues from individual income tax grew from 8.8 percent to 8.9 percent and VAT revenues grew from 6.5 percent to 6.8 percent over the same period.

"Corporate taxpayers continue finding ways to pay less, while individuals end up footing the bill," said Pascal Saint-Amans, Director of the OECD Centre for Tax Policy and Administration. "The great majority of all tax rises seen since the crisis have fallen on individuals through higher social security contributions, value-added taxes (VATs), and income taxes. This underlines the urgency of efforts to ensure that corporations pay their fair share."

The OECD said its Base Erosion and Profit Shifting (BEPS) Project could provide answers, as it puts forward solutions for closing the gaps in existing international rules that allow corporate profits to "disappear" or be artificially shifted to low- or no-tax environments, where little or no economic activity takes place.

Revenue Statistics shows that the average tax burden across OECD countries increased to 34.4 percent of GDP in 2014. The increase of 0.2 percentage points in 2014 continues the recent upward trend, as the OECD average tax burden has increased in every year since 2009 when the ratio was 32.7 percent. The tax burden is measured by taking the total tax revenues received as a percentage of GDP.

While the increase in tax ratios between 2009 and 2014 is due to a combination of factors, the largest contributors have been increases in revenue from VAT and taxes on personal incomes and profits, which combine to account for around two-thirds of the increase. Revenues from social security contributions and property taxes account for the majority of the remainder.

Discretionary tax changes have played an important role, as many countries have raised tax rates or broadened tax bases or both. The OECD average standard VAT rate has increased to a record high, rising from 17.7 percent in 2008 to 19.2 percent in 2015. 22 of 34 OECD countries raised top personal income tax rates between 2008 and 2014.

The average OECD tax-to-GDP ratio in 2014 was 0.3 percentage points higher than the pre-crisis level of 34.1 percent in 2007, and has surpassed the previous high of 34.2 percent, which was recorded in 2000. The average revenues from corporate incomes and gains fell from 3.6 percent to 2.8 percent of GDP over the same period. This decline was offset by an increase in social security contributions, from 8.5 percent to 9.2 percent of GDP, and a smaller increase in revenues from VAT.

This year's edition also includes a special chapter on the impact on the measurement of tax-to-GDP ratios of the move to the 2008 System of National Accounts (SNA).

The report's key findings include that:

  • Compared with 2013, the average tax burden in OECD countries increased by 0.2 percentage points to 34.4 percent in 2014. This followed a rise of 1.5 percentage points between 2009 and 2013, reversing the decline from 34.1 percent to 32.7 percent between 2007 and 2009. The 2014 figure is the highest ever recorded OECD average tax-to-GDP ratio since the OECD began measuring the tax burden in 1965.
  • The ratio of tax revenues to GDP rose in 16 of the 30 OECD countries for which 2014 data are available, compared with 2013, and fell in 14. Between 2009 and 2014, there were increases for 22 of these countries, a decline in seven, with one unchanged.
  • About 80 percent of revenue increases over the 2013-14 period are attributed to a combination of consumption taxes and taxes on personal incomes and profits. This combination also accounts for two-thirds of the rise in revenues between 2009 and 2014.
  • The largest tax ratio increases between 2013 and 2014 were in Denmark (3.3 percentage points) and Iceland (2.8 percentage points). Other countries with substantial rises were Greece (1.5 percentage points), Estonia (1.1 percentage points), and New Zealand (1.0 percentage point).
  • The largest falls were in Norway (1.4 percentage points) and Czech Republic (0.8 percentage points). Luxembourg and Turkey showed falls of 0.6 percentage points.
  • Denmark has the highest tax-to-GDP ratio among OECD countries (50.9 percent in 2014), followed by France (45.2 percent) and Belgium (44.7 percent).
  • Mexico (19.5 percent in 2014) and Chile (19.8 percent) have the lowest tax-to-GDP ratios among OECD countries. They are followed by Korea, which has the third lowest ratio among OECD countries at 24.6 percent, and the United States at 26.0 percent.

TAGS: individuals | environment | tax | value added tax (VAT) | Belgium | Chile | Denmark | Iceland | property tax | gross domestic product (GDP) | Estonia | Israel | Luxembourg | Mexico | Norway | tax rates | social security | Czech Republic | France | Greece | New Zealand | Spain | United States | G20 | individual income tax | Turkey | Other | Tax | BEPS

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