Reducing evasion is key as business taxes race lower

Outlook

Other countries would likely react with their own cuts. UK corporate tax is one of the lowest in the G20 and Prime Minister Teresa May has vowed to maintain this.

Reducing tax evasion is crucial. Canada generates more revenue despite a lower corporate tax rate than the United States. The US Treasury Department estimates that the average corporate tax rate paid by firms with at least 10 million dollars of assets is actually around 20%.

A favourable tax agreement with Ireland meant Apple paid 0.05% or less on some of its foreign profits from 2003-14. The EU has ruled Apple owes 14.5 billion dollars but both parties are appealing -- Ireland doesn’t want other investors to be discouraged.

Impacts

• A lower US rate would reduce tax revenues from US firms, but would not guarantee relocation or investment by non-US firms.
• Estimates suggest each percentage-point cut in the UK corporate rate would reduce revenues by nearly 2 billion pounds (2.5 billion dollars).
• The Economic and Social Research Council claims that if Ireland raised business taxes to 13.5%, firms would be 5.0% less likely to go there.
• The EU’s lowest corporate tax rate is Hungary at 9%; widespread low rates mean that tax has a decreasing influence on a firm’s location.