Credit: (photo: Morteza Nikoubazl/SIPA/Newscom)

Chart of the Week

Corporate Tax Rates: How Low Can You Go

In life, two things are certain: death and taxes, the saying goes.

Unless you are a large multinational corporation, in which case, maybe not.  Over the past 30 years, corporate tax rates in all countries have fallen to very low levels, as we show in our chart of the week.

This is a problem on several fronts and is one of the reasons why a new approach to international corporate taxation is urgent.

First, the ease with which multinationals seem able to avoid tax, combined with the three-decade long decline in corporate tax rates, undermines both tax revenue and faith in the fairness of the overall tax system.

In life, two things are certain: death and taxes.

Second, the current situation is especially harmful to low-income countries, depriving them of much-needed revenue to help them achieve higher economic growth, reduce poverty, and meet the 2030 Sustainable Development Goals.

Advanced economies have long shaped international corporate tax rules, without considering how they would affect low-income countries.

IMF analysis shows, for example, that non-OECD countries lose about $200 billion in revenue per year, or about 1.3 percent of GDP, due to companies shifting profits to low-tax locations.

So, we clearly need a fundamental rethink of international taxation. And the interests and special circumstances of developing countries need particular attention.

Yet this means countries must work together.  Making progress requires cooperation among all, and needs to be in the direction of a lasting, efficient and fair approach.

New IMF research analyzes various options in the context of three key criteria: better addressing profit-shifting and tax competition; overcoming the legal and administrative obstacles to reform; and ensuring full recognition of the interests of emerging and developing countries.

The current international corporate tax architecture is fundamentally out of date. Large changes are now being considered. By rethinking the existing system and addressing the root causes of its weakness, all countries can benefit, including low-income nations.