Wealthy nations continue trend of corporate tax cuts, OECD finds

5 Sep 18

Advanced economies around the world cut both corporate and personal income tax as part of reforms last year, according to the OECD.

In 2018, eight countries cut corporation tax with an average reduction of 4.8 percentage points, the organisation said in its report.

There has been a long-term trend in cutting corporation tax. Across the 35 OECD countries plus Argentina, Indonesia and South Africa the average corporate tax rate has fallen from 32.5% in 2000 to just under 24%.

While this has sparked concerns of a ‘race to the bottom’, with countries undercutting each other to offer low rates to businesses, OECD tax director Pascal Saint-Amans said in many places tax reforms were “long overdue”.

He said: “While these corporate tax cuts have created some concerns of a ‘race to the bottom’, most of these countries appear to be engaged in a ‘race to the average’, with their recent corporate tax rate cuts now placing them in the middle of the pack.

“We will be closely watching how other countries respond to this trend in the future.”

Significant tax reforms were introduced in Argentina, France, Latvia and the US in the last year, with strong focus on attracting investment and enhance fairness, the report noted.

Income tax cuts were also introduced in many OECD countries, particularly to ease the burden on low- and middle-income earners.

“A common strategy has been to increase earned income tax credits, which can achieve dual goals of improving labour market participation and enhancing the progressivity of the tax system,” the organisation said.

The report also observed there had been little progress on social security reforms and environmental taxation and called for countries to act.

Saint-Amans also called for international cooperation in the fight against global corporate tax avoidance and implementation of the OECD’s Base Erosion and Profit Shifting project.

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