International corporate taxation: If it’s broken, fix it

Our NEW dynamic chart series starts with a focus on international corporate taxation. Globalisation, digitalisation, and tax competition have all contributed to a less fair and effective tax revenue generation from multinational companies.

The topic is well documented, e.g. see this thick IMF book (2021). This CEPR paper (2022) also shows how the taxation of capital has decreased relative to that of labour in high-income countries, over the past half century. Our chart highlights the secular decline in statutory corporate tax rates across OECD countries. Such receding tide has contributed to growing inequality, declining trust in governments (OECD) and rising populism in western democracies.

The “race to the bottom” has lost momentum over the past decade. 138 countries recently agreed to the first major overhaul of the international tax system in a century. The reform aims at creating both a fairer geographical allocation of profits and a global minimum effective tax rate of 15%.

Yet the reform is complex and not finalised just yet; it has limited coverage and would raise only small incremental tax revenues. With EU countries currently trusting the top 6 OECD positions for lowest corporate income tax rates, and three of them offering a statutory rate below that of Singapore (17%, non-OECD), the region has a key role to play in fixing international corporate taxation.?