Although countries have not decreased their corporate income tax (CIT) rates in 2019 as drastically as they did in 2018, those rates continue to converge as countries with the highest rates have introduced the most significant cuts.
According to the OECD’s “Tax Policy Reforms 2019” report, published September 5, momentum for comprehensive tax reforms has slowed in 2019, as countries tended to introduce less significant changes in a more fragmented manner in contrast to previous years.
The OECD found that the Netherlands had introduced the most comprehensive tax reform package in 2019, while others announced significant tax changes in specific areas. Australia introduced major personal income tax reforms, Italy announced significant corporate tax changes, Lithuania focused on labor taxes, and Poland introduced a mix of personal and corporate tax reforms.
Growth-oriented structural tax reforms appear to be on the decline, despite the many difficulties that countries now face, including weak economic growth and income and wealth inequality, according to Pascal Saint-Amans, director of the OECD Centre for Tax Policy and Administration. “In the face of these challenges, it is clear that bolder action is needed,” Saint-Amans said in a release.
A key trend identified by the report is the widespread decline in statutory CIT rates, with the OECD average decreasing from 32.2 percent in 2000 to 23.5 percent in 2019. The only country that had a higher CIT rate in 2019 compared with 2000 was Chile, the report found.
CIT rate cuts have been especially pronounced in G-7 countries, which had significantly higher rates compared with other countries in the early 2000s, and then dropped their rates by an average of 13.2 percentage points between 2000 and 2019. “Nevertheless, CIT rates in G-7 countries remain higher than in the rest of the OECD on average,” the report says, adding that non-G-7 countries saw an average CIT rate decrease of about 7.7 percentage points.
Countries with especially high CIT rates tended to introduce the most significant cuts. Greece had planned to gradually decrease its CIT rate by lowering it from 29 percent to 28 percent in 2019, then by 1 percentage point annually to hit a target rate of 25 percent by 2022, according to the report. Greece’s new government, however, is expected to announce new tax cuts in September and has made it a priority to decrease the CIT rate to 20 percent by 2020.
The Netherlands cut its CIT rate from 20 percent to 19 percent for companies with taxable income of up to €200,000 in 2019, and that rate will be slashed further still to 16.5 percent in 2020 and 15 percent in 2021. For companies with income exceeding €200,000, the Netherlands kept the CIT rate at 25 percent, but will cut it to 22.55 percent in 2020 and 20.5 percent in 2021, the report says.
Another key CIT rate trend is that countries are spreading out rate reductions over several years, according to the report.
CIT rate cuts in 2019 in general were less significant compared with 2018, and the five countries that decreased their rates in 2019 had an average rate cut of 1.2 percentage points. In 2018 eight countries lowered their rates, by an average of about 3.7 percentage points, according to the report.
The OECD also examined trends in international tax policy reforms, noting that countries are continuing to adopt major reforms under the base erosion and profit-shifting project. Progress also continues on international negotiations on a multilateral, long-term solution to address the tax challenges of the increasingly digital economy, according to the report.
However, some countries have introduced or are considering unilateral measures, such as revenue-based digital services taxes, to address the issue in the short term. “The countries that are considering interim measures will continue efforts to reach a multilateral agreement and have agreed to remove interim measures when an international solution is found,” the report says.
The report’s publication coincided with the Czech Republic’s September 5 announcement that the Ministry of Finance has proposed a 7 percent digital tax on the turnover of large companies involved in three types of activities: selling user data, selling targeted advertising on a digital interface, and offering digital platforms that allow users to connect and interact with each other and facilitate the sale of goods or services between those users.
The proposed Czech tax is modeled on the European proposal for an EU-wide DST that the European Commission had tried and failed to introduce. The tax will apply to companies that have a global annual turnover exceeding €750 million and have annual turnover of least CZK 50 million (about $2.1 million) in the Czech Republic.
By Stephanie SOONGJOHNSTON
Cet article est extraite de notre service d'actualité Taxnotes.