Corporate tax (or
corporation
tax) refers to a
tax levied by various
jurisdictions on the
profits
made by
companies or
associations. It is a
tax on the value of the corporation’s profits.The
general global trend of national corporate taxation is downwards -
In the last ten years average rates fell from 35.0% to 26.30%
.
Tax base
The measure of taxable profits varies from country to country. In
some countries, for example the
United States, the
taxable profits are calculated according to a quite different set
of rules from those used in the calculation of profits in the
financial statements. The
amounts that can be deducted for
capital expenditure and for interest
payments vary substantially from country to country.
In many countries,
depreciation of
capital assets calculated in the financial statements ("book
depreciation") is not deductible, and a deduction is given for tax
depreciation calculated on a different basis. In the United States,
tax depreciation is generally calculated by a method known as
MACRS.
In the United Kingdom
, where the main corporate tax is called corporation tax, tax
depreciation, known as "capital allowances", is allowed instead of
book depreciation, usually at the rate of 25% per annum (20% from 1
April 2008) on a reducing balance basis. In France
depreciation
is allowable, within certain rates per classes of asset set down by
statute.
Company shareholder taxation
An issue in corporate taxation is the taxation of shareholders who
receive dividends or distributions from a company out of profits
which have already been taxed. This contrasts with a
partnership or
sole proprietorship, where the owner of
the business is usually taxed only on the profits of the business
and not on distributions of profits. Different solutions are
adopted for this problem:
- The company may not be taxed, and instead the shareholders are
taxed on the profits of the business, not on distributions. This
method is adopted by the United States, but only for companies
owned by a small number of shareholders, so-called S corporations.
- Under an imputation tax
system, some or all of the tax paid by the company may be
attributed pro rata to the shareholders by way of a tax credit to reduce the income tax payable on a
distribution. Australia and
New
Zealand
have imputation systems. From 1973 to 1999,
the UK operated a partial imputation system, with shareholders able
to claim a tax credit reflecting advance corporation tax (ACT) paid
by a company when a distribution was made. A company could set off
ACT against the company's annual corporation tax liability.
- Distributions such as dividends may be
fully or partially exempt from tax.
- Austria
and Germany
operate a
"double income" system on distributions, where only half the
distribution is subject to tax, or, equivalently, the tax rate is
halved.
- The
Netherlands
operates a participation exemption under which
certain distributions are exempt from tax.
- In Canada, dividends
taxable in the hands of eligible shareholders may qualify for a
dividend tax credit to compensate for taxes already paid by the
corporation.
- In the United States, dividend income from C corporations (companies which are not S
corporations) is generally taxed at a lower rate than other income.
Dividend income received by other corporations is wholly or
partially exempt (the "Dividend Received
Deduction").
If none of these methods is used, a form of
double taxation results.
Tax rates
The global average rate of corporate taxes has lowered from 32.69%
to 25.51% between 1999 and 2009. In OECD countries (a group of
developed countries), it has fallen from 35.0% to 26.30% during the
same period . Many observers explain this fall by a political
phenomenon called the "
race to the
bottom", in which governments compete with each other in order
to attract corporations and capital.
Tax rates around the
world vary considerably both in their
statutory rates, and in their
effective rates after all
offsets are considered, preventing any straightforward comparisons
of tax rates between countries.
In some countries, for example, the United
States, Canada and Switzerland
, subnational governments also collect taxes, which
further complicates the calculation of the tax rate.
In the United States, the top
marginal federal corporate rate
for taxable income over $18.3 million is 35% (it can be as low as
15% for taxable income under $50,000). Most states also tax
companies, but the state tax is a deductible expense in calculating
federal tax, so the overall tax rate is not simply the sum of the
two tax rates.
The UK main rate of Corporation Tax was reduced on 1 April 2008
from 30% to 28%. This applies to companies with a taxable profit
greater than £1.5m. Companies with taxable profits under £300,000
pay tax at the lower rate of 21%, with a sliding scale rate for
profits up to £1.5m. Profits are taxed dependant on which bracket
the company falls into, i.e. a company with profits of £2m would
pay tax on all profits at 28%.
Detailed data are available for the world's most developed
economies, i.e. those in the
Organisation
for Economic Co-operation and Development.
See also
References
- survey of corporate tax, KPMG
- survey of corporate tax, KPMG
- Interactive map of state corporate tax rates,
LawServer
External links
Wikis
Quiz
Map
Search
