Businesses in the US pay one of the highest corporation tax rates in the world and well above the global average, suggests a study by the international accounting and consultancy network UHY.
According to London-based UHY, the US’ corporation tax rate was 41.1% (combined federal and assumed state tax rate of 7.1%) on taxable profits of US$1,000,000 for the financial year 2014-15.
The figure is far higher than the global average corporation tax rate of 27%. For European economies the average is 25.3% and the average for the G7 leading economies of the world is even higher at 32.3%.
However, the US high corporate tax rate is mitigated by various tax planning opportunities and deductions which result in many businesses’ effective tax rate being far lower than 41%.
UHY adds that low corporation taxes can help countries create competitive advantage and fuel growth by freeing up more profits for re-investment, discouraging domestic companies from moving investment overseas and attracting foreign companies to locate there.
The group’s tax professionals studied corporation tax data on taxable profits of US$1m in 31 countries across its international network, including all members of the G7, as well as key emerging economies.
The US is at the top of the table of economies with the highest corporation tax in the study, charging a stated rate of 41.1%. Its North American neighbour Canada charges 26.7% and fellow G7 member, the UK, which charged 21% in 2015, has almost half the corporate tax rate of the US.
Japan is ranked second, with a rate of 38.6%, despite reducing corporation tax by 2.5% in a year as part of prime minister Shinzo Abe’s “Abenomics” policy to stimulate growth in the Japanese economy following more than two decades of stagnation.
“There is a global competition amongst countries to offer a lower corporation tax rate, and there are enormous advantages for those countries that can put themselves ahead of the pack,” said UHY spokesman and board member Dennis Petri. “Enabling companies to retain more of their profits encourages them to re-invest more capital back into their business, helping to drive innovation.
“The US could see significant benefits by simplifying and reducing the corporate tax burden across the board, in order to better support the domestic business base and attract more corporate investment from overseas.”
Businesses in the UK and Russia enjoy the lowest corporation taxes of the major global economies, accounting for just 21% and 20% of their profits respectively.
UHY says that of the 31 countries in the study, 74% have kept corporation tax rates the same over the last two years. Six (19%) lowered rates last year, while just two countries- Israel and India – raised it.
“Clearly there is not much appetite for governments to raise corporation tax rates in the current climate but there is little interest to lower them either,” said Petri.
“Tinkering around the edges with a variety of reliefs and exemptions can create far more complicated systems which are then far more open to abuse and error. Simply cutting the stated rate sends a very clear message that an economy is very much on the side of business growth, expansion and continued investment. ”
UHY adds that the United Arab Emirates has the lowest corporate taxes of any country in the study by charging no corporation tax at all, followed by Ireland (12.5%) and several eastern European countries including Romania, the Czech Republic and Croatia.
An upgrade for the US, Europe and Japan is offset by downgrades for Mexico and other major emerging economies.
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