The Organisation for Economic Co-operation and Development (OECD) has released the latest edition of its annual Corporate Tax Statistics publication.
As progress is made in international tax reform negotiations over ensuring multinational enterprises pay a fair share of tax wherever they operate, the new report shows the importance of the corporate tax as a source of government revenues, while also pointing to evidence of continuing base erosion and profit shifting behaviours.
The data show that statutory corporate income tax (CIT) rates have been decreasing in almost all countries over the last two decades. Across 111 jurisdictions, 94 had lower CIT rates in 2021 compared with 2000, while 13 jurisdictions had the same tax rate, and only 4 had higher tax rates.
The average combined (central and sub-central government) statutory CIT rate for all covered jurisdictions declined from 20.2% in 2020 to 20.0% in 2021, compared to 28.3% in 2000. These declining rates highlight the importance of Pillar Two, which will put a multilaterally agreed limit on corporate tax competition.
Under the OECD’s two-pillar solution to address the tax challenges arising from the digitalisation of the economy, Pillar One would re-allocate some taxing rights over multinational enterprises (MNEs) from their home countries to the markets where they have business activities and earn profits, regardless of whether firms have a physical presence there. Pillar Two seeks to put a floor on competition over corporate income tax, through the introduction of a global minimum corporate tax rate that countries can use to protect their tax bases.
The report shows that the corporate income tax is an important source of tax revenues for governments to fund essential public services, especially in developing and emerging market economies. On average, the corporate income tax accounts for a higher share of total taxes in Africa (19.2%) and in Latin America and the Caribbean (15.6%) than in OECD countries (10%).
The report also includes new Country-by-Country Reporting data, which provides aggregated and anonymised information on the global tax and economic activities of around 6000 multinational enterprise groups.
While the data contain some limitations, the statistics suggest continuing misalignment between the location where profits are reported and the location where economic activities occur. This can be seen through differences in profitability, related-party revenues, and business activities of multinational enterprises in investment hubs and zero-tax jurisdictions compared to multinational enterprises in other jurisdictions. While these effects could reflect some commercial considerations, they are also indicate the existence of BEPS.
This year’s report also includes new indicators highlighting the use of tax incentives for research and development (R&D) investments. The indicators, which are accompanied by a new working paper, show that in 2020, among OECD countries offering tax support, R&D tax incentives decrease the effective tax rate on R&D investments by around 10 percentage points on average, compared to non-R&D investments.
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