As I was
reading an article on how several companies are acquiring others based in low tax
rate countries, one of the things that struck me was how varied the tax
range is across the world, both for corporate as well as personal tax rates. Below
is the list of both and let us see some points that the data throws back at us.
The mean
for corporate tax rate is 26% but the lowest is in Ireland at a mere 12.5%
whereas the highest is in the UAE is at 55%. That seems like a lot of room for
companies to shop.
For the
personal tax rates (for the highest tax bracket) the mean is much higher at 36%
and again the range is wide with Saudi Arabia and UAE charging 0% whereas the highest
Sweden at 57%.
There are
some countries where corporate and individual tax rates are similar and both
low like Hong Kong and Singapore, perhaps reflecting an overall economic
strategy. But there are others where individual taxes are high but corporate
tax quite low, perhaps an aggressive attempt at luring business from abroad. Ireland
and Finland seem to fit this bill.
Personal tax rates are unique to each country
and people can’t shop for them as they are normally domiciled in theirs and
shifting is a lot more emotional decision.
Corporate
tax on the other hand is a more sensitive issue. Companies can base themselves
anywhere in the world and increasingly will seek low tax havens. Hong Kong and
Singapore’s tax rates at 17% and Ireland at astonishingly low 12.5% are
lucrative versus that of 35 – 40% in countries like the US, Japan etc. So much
difference in the tax rates would make substantial difference to the companies’
earnings. And unlike personal relocation decisions which are based on cultural
roots etc., companies’ decisions are not emotional and they would see no harm
in finding better deals. I read recently that countries are trying to regulate
it but there is no way to control it. The good news is that only smaller
countries can offer such deals. Very large economies need to earn on their own
base and tend to be closer to 25 or above.
But still if the rate is too much higher than that, the companies would
be tempted no matter how professional their home base country is. Because they
can operate from anywhere afterwards!
So if there
are scenarios with much lower corporate tax rates – companies are going to shop.
In a global world, this will warrant some rationalization for higher tax rate
countries to remains lucrative.
Highest
corporate taxes are in the UAE, the US and Japan though that has not deterred
business thus far perhaps due to their industry friendly environment.
Personal
tax rate is highest in European countries like Sweden, Denmark, Netherlands
etc. though that might explain their greater equality which we saw in the
previous blogpost.
Well of
course, taxation is so varied for historical reasons. Each country evolved its
own formula well before globalization. But in the present age, such
differentials are going to make a difference and countries can not ignore that factor
so easily.
Any how
here is the detailed list:
Corporate Tax rate
|
Personal Tax rate
|
||
12.5
|
48
|
||
15
|
15
|
||
16.5
|
15
|
||
17
|
20
|
||
17
|
40
|
||
17.92
|
40
|
||
19
|
22
|
||
19
|
32
|
||
20
|
40
|
||
20
|
51.25
|
||
20
|
13
|
||
20
|
0
|
||
20
|
35
|
||
20
|
35
|
||
22
|
57
|
||
23
|
48
|
||
23
|
45
|
||
24.2
|
38
|
||
24.5
|
55.6
|
||
25
|
50
|
||
25
|
45
|
||
25
|
33
|
||
25
|
25
|
||
25
|
30
|
||
25
|
26
|
||
25
|
52
|
||
26
|
29
|
||
26
|
42
|
||
26.5
|
50
|
||
27
|
47.2
|
||
28
|
40
|
||
29.6
|
45
|
||
30
|
45
|
||
30
|
30
|
||
30
|
24
|
||
30
|
32
|
||
30
|
52
|
||
31.4
|
43
|
||
33.3
|
45
|
||
34
|
50
|
||
34
|
27.5
|
||
34
|
33.99
|
||
34
|
20
|
||
34
|
34
|
||
35
|
35
|
||
38.01
|
50.84
|
||
40
|
39.6
|
||
55
|
0
|
||
| Mean |
26
|
36
|
|
No comments:
Post a Comment