KPMG Corporate Tax Rate Survey.pdfVIP

KPMGs Corporate Tax Rate Survey An international analysis of corporate tax rates from 1993 to 2006 TAX 2 C o r p o r a t e I n c o m e T a x R a t e Summary and Comment Since 1993, KPMG has published an annual analysis of corporate tax rates around the world. In our initial survey, the rates from 23 countries were examined. Now, in 2006, the list stands at 86 countries. The survey has recorded a consistent and dramatic reduction in corporate tax rates over that 14-year period. This reduction began in the mid-1980s in the United Kingdom when the government of Margaret Thatcher lowered the corporate tax rate from 52 percent to 35 percent between 1982 and 1986, forcing other countries to follow suit. Once one major industrialized economy cuts its rates, others seem compelled to do the same, in a process of international tax competition that continues and intensifies over time. In the past 14 years, the average corporate tax rate of countries surveyed by KPMG declined nearly 29 percent (28.7), dropping from an average of 38 percent to 27.1 percent. This same process seems to apply across entire regions and economic alliances, as shown by the clear impact on European Union (EU) tax rates of the 10 new states that joined the community in 2004, and indeed by the evident worldwide competition between the trading blocs such as the Asia Pacific (ASPAC) nations, Group of 7 (G7), Organisation for Economic Co-operation and Development (OECD) and the EU. This competition suggests that there must be some benefit in having low corporate taxes, and indeed it appears that countries that adopt comparatively low tax rates tend to do better in terms of growth and inward investment than those that do not. But does this mean that countries are locked into a “race to the bottom” in tax rates? Policymakers, faced with the need to fund social programs, may fear revenue shortfalls if they simply reduce corporate income tax rates, even though there is a t