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Big international companies pay less taxes than 10 years ago

big international companies

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Large international companies pay significantly lower taxes than before the financial crisis in 2008. The effective tax rates for companies – the share of the profits they would have to pay, fell by 9% after the financial crisis. This happens despite efforts to combat aggressive tax evasion. The decline in corporate taxes by governments explains about half of the overall decline, indicating that international companies are still ahead of efforts to tighten up tax collection.
The results of the analysts show that corporations’ contribution to public finances has declined since 2008 as a percentage of profits measured by core corporate tax, effective taxes, or government taxes actually paid. The rules allowing companies to postpone the payment of certain taxes have led to a significant difference between effective taxes and actual payments in a given year.
The long-term trend is even more pronounced, with effective corporate tax rates declining by nearly a third since 2000 – from 34% to 24%.
Since the beginning of the financial crisis, the average level of effective taxes has fallen by about 13% for the largest technology and industrial companies. In practice, they have remained unchanged in the health and consumer sectors. The results show that OECD countries’ long-standing trend of corporate tax cuts has continued in the times when consumer and employee taxes have grown since the financial crisis. Since 2008, the countries have reduced their core corporate taxes by 5%, while governments have raised taxes on natural persons by 6%.
This is a competition process among governments, which probably will not stop. Lowering the core corporate tax in the US is likely to cause more competition in the tax area between governments. More surprising is the limited impact so far of the 10-year OECD and G20 ambitions to simplify the network of national tax rules that allow international companies to minimize their taxes.
The European Commissioner for Economic and Financial Affairs, Taxation and Customs Pierre Moscovici said that countries have the freedom to set their own corporate taxes, but added that international tax reform is needed.
“Let’s not make a mistake – the basic tax rate does not lead to tax evasion and aggressive tax planning. This comes from schemes that facilitate the transfer of profits”, added Pierre Moscovici.
The political desire to tackle “shifting profits” is all the more urgent, amid the sharpening of corporate tax cuts by large data leaks and political investigations into tax affairs for technology companies such as Apple, Google, and Amazon.
The documents show that large technology companies pay significantly less taxes on profits made abroad than on home-earned money. The companies claim to pay all their taxes legally and some recognize the need for tax reform.
National laws implementing the 15-point OECD Action Plan to curb aggressive tax evasion through so-called erosion or relocation of profits are starting to take effect. The expectations are next year to see if there is any effect of new interest rate cuts between countries aimed at dealing with intercompany loans that are often used to transfer profits to another jurisdiction.
Other initiatives may need more time to appear in corporate results. The difference between companies’ reports of how much taxes they are expected to pay and the actual payments seen in fund transfers has also grown because of tax system anomalies that have encouraged some US companies to export money or profits abroad during this period.
By the end of last year, the US companies accounted for nearly 2.6 trillion USD abroad, for which they have not paid taxes. The United States changed its tax rules in December, imposing a one-time tax of 15.5% on foreign companies’ money.
The country has also lowered its corporate tax rate from 35% to 21%. The one-time levy could bring tax revenues to Washington for about 400 billion USD, but it would also save companies up to 500 billion USD compared to the core corporate tax that was in force at the profit.