22/03/23

INTERNATIONAL TAX: Corporate tax rate has declined over last 20 years, says OECD.

As published on delano.lu, Tuesday 21 March, 2023.

The OECD has published its statistics on corporate taxes. The study shows that the importance of corporate tax in the coffers is not equivalent to its symbolic importance.

According to the latest OECD survey on the subject in 2019, corporate tax revenues averaged 15% of total tax revenues and 3.1% of GDP in the 115 jurisdictions for which the OECD had data. These figures, obviously, vary by country.

For example, in 2019, the share of corporate tax in total tax revenue was on average higher in Africa (18.8% for the 30 jurisdictions covered), Asia-Pacific (18.2% for the 24 jurisdictions covered) and Latin and Central America (LAC) (15.8% for the 26 jurisdictions covered) than in the OECD area (9.6%). The organisation notes that in 14 countries--Bhutan, Chad, Democratic Republic of Congo, Egypt, Equatorial Guinea, Ghana, Indonesia, Kazakhstan, Malaysia, Nigeria, Papua New Guinea, Singapore, Thailand and Trinidad and Tobago--corporate taxes accounted for more than a quarter of total tax revenues.

The same applies to the share of corporate income tax in GDP: it averages 3.1%, with fluctuations ranging from 2% to 5%. It is highest in the LAC region (3.6% for the 26 jurisdictions covered), followed by the Asia-Pacific region (3.3%, 28 jurisdictions), the OECD area (3.0%) and Africa (2.9%, 30 jurisdictions).

Unsurprisingly, the revenue from this tax is dependent on the economic cycle. On average, over the period 2000-19, the level of revenue as a percentage of GDP peaked in 2008 (3.5%) and has since declined. Despite a recovery after 2010, unweighted averages fell in 2014, 2015 and 2016 in all 114 jurisdictions surveyed. They recovered slightly in 2017 and 2018 due to increases in a large number of jurisdictions. These two years of increases were followed by a slight decline, with more than half of the 114 jurisdictions seeing a decline in both indicators in 2019.

In terms of the evolution of tax rates, the OECD notes that rates have been declining over the past 20 years. On average, the combined statutory corporate tax rate (central and sub-national) across all jurisdictions surveyed was 20% in 2022, down from 28% in 2000. 97 jurisdictions applied a lower rate in 2022 than in 2000, while 14 applied an unchanged rate and six a higher rate (Andorra, Cook Islands, Honduras, Hong Kong, Maldives and Oman).

Again, there are many disparities between countries and geographical areas. In 2022, in 19 of the 117 jurisdictions surveyed, the standard corporate tax rate was 30% or higher. Colombia and Malta had the highest rate (35%). At the same time, 12 jurisdictions had no or zero corporate tax. And the average statutory corporate tax rate in the OECD area has fallen the most, from 32.3% in 2000 to 23.1% in 2022.

What about Luxembourg?

In 2022, the statutory corporate tax rate was 24.9% and the average effective rate was 23.2%. The direct “competitor countries” had a significantly higher rate. This was 25% in Belgium, 25.8% in the Netherlands and France and 29.8% in Germany for the statutory rate, and 23.3% in Belgium, 23.7% in the Netherlands, 25.9% and France and 26.6% in Germany for the average effective rate.

Another significant figure is the contribution of multinational enterprises (MNEs) to total income tax revenues. This contribution reaches 55% in the grand duchy, of which 5% comes from local subsidiaries owned by local MNEs and 50% from local subsidiaries owned by foreign MNEs. On this last point, only Singapore and Ireland do “better,” with 52% and 81% respectively.