Corporate tax revenues have been falling across Organisation for Economic Cooperation and Development (OECD) countries since the global economic crisis, putting greater pressure on individual taxpayers to ensure that governments meet financing requirements, according to new data on the 34-mainly developed countries that was issued Thursday. France has a bizarre system where an effective corporate rate (amount of tax provided for in accounts as a ratio of taxable net income) of 8 to 9% applies to small firms while the rate for other firms declines to the same range for very big firms.

 

Average revenues from corporate incomes and gains fell from 3.6% to 2.8% of gross domestic product (GDP) over the 2007-14 period. Revenues from individual income tax grew from 8.8% to 8.9% and VAT revenues grew from 6.5% to 6.8% over the same period.

“Corporate taxpayers continue finding ways to pay less, while individuals end up footing the bill,” said Pascal Saint-Amans, director of the OECD Centre for Tax Policy and Administration. “The great majority of all tax rises seen since the crisis have fallen on individuals through higher social security contributions, value added taxes and income taxes. This underlines the urgency of  efforts to ensure that corporations pay their fair share.”

The OECD said these efforts are focused on the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project, which provides governments with solutions for closing the gaps in existing international rules that allow corporate profits to "disappear" or be artificially shifted to low/no tax environments, where little or no economic activity takes place.

Revenue Statistics shows that the average tax burden across OECD countries increased to 34.4% of GDP gross domestic product (GDP) in 2014. The increase of 0.2 percentage points in 2014 continues the recent upward trend, as the OECD average tax burden has increased in every year since 2009 when the ratio was 32.7%. The tax burden is measured by taking the total tax revenues received as a percentage of GDP. 

The largest tax ratio increases between 2013 and 2014 were in Denmark (3.3 percentage points) and Iceland (2.8 percentage points). Other countries with substantial rises were Greece (1.5 percentage points), Estonia (1.1 percentage points) and New Zealand (1.0 percentage point). The largest falls were in Norway (1.4 percentage points) and Czech Republic (0.8 percentage points). Luxembourg and Turkey showed falls of 0.6 percentage points.

Underlying the OECD average, individual countries show widely differing trends. For example, Spain recorded a fall of 3.3 percentage points between 2007 and 2014, while Greece recorded an increase of 4.7 percentage points.

OECD tax revenue statistics 2015Denmark's total tax ratio to gross domestic product (GDP) rose to 51.9% in 2014 (one-off factors included a change in the treatment of pensioners and a jump in capital gains tax receipts); France's ratio was 45.2%%, and Belgium (44.7%) in 2014.

Mexico at 19.5% in 2014 and Chile at 19.8% had the lowest tax-to-GDP ratios among OECD countries. They were followed by Korea, which has the third lowest ratio among OECD countries at 24.6%, and the United States at 26.0%.

Germany was at 36.1%; UK was at 32.6% and Ireland was at 29.9% — the gap between Irish GDP and GNP (gross national product) narrowed to 16% in recent years because of distortions caused by US tax inversions but using GNP which  excludes the significant profits of real-world activities of foreign firms, gives an Irish tax burden of 34.7%.

Corporate taxes accounted for 5% of revenues in Germany 6% in France and 8% in Ireland and the UK.

Social security contribution ratio was 38% in Germany, 18% in Ireland and 19% in the UK.

The headline corporation tax in Britain will fall to 18% by 2020 in a move which George Osborne, the chancellor, claims will send out a message that Britain is open for business. The headline rate fell to 20% this year. Meanwhile, Nikkei reports that Japan's ruling coalition plans to lower the tax rate to just under 30% — a level comparable with Germany's — which will mean a total reduction of 7 percentage points over three years.

Norway reduced the corporate income tax rate from 28% to 27% for 2014. Spain reduced the corporate income tax rate for companies incorporated on or after 1 Jan, 2013, from the standard rate of 30% to 15% for the first €300,000 and 20% thereafter.

France

France has two main corporate tax rates — a rate of 15% for small firms and a combined rate of 34.43% for bigger firms. In addition to the headline rate of 12.5%, Ireland has a special deal for startups and will have a patent box rate of 6.25% from 2016.

A 3.3% social contribution is levied on the part of the French corporate income tax that exceeds €763,000, resulting in an overall maximum tax rate of 34.43%, according to KPMG, the Big 4 accounting firm.

In addition, a temporary 10.7% surtax is levied on companies with a turnover over €250m. The tax is calculated on the gross CIT (corporate income tax) liability but before the application of any tax credit (such as R&D credit or foreign tax credit). This temporary surtax, which brings the overall maximum tax rate to 38%, is expected to apply to financial years (closed) from 31 Dec 2011 until financial years (closed) on 30 Dec 2016.

Specific categories of income can benefit from a reduced corporate tax rate under certain conditions. In particular, licensing fees relating to certain IP (intellectual property) rights can benefit from a 15% corporate tax rate (respectively 15.5% or 17.10% taking into account the above two surtaxes).

Small and medium size companies with a turnover of €7.63m or less and owned at least 75% by individuals (or owned by companies meeting the same conditions) are subject to a corporate tax rate of 15%. This reduced rate applies to taxable profits up to €38,120. These small and medium size companies are not subject to the above–mentioned social contribution and temporary surtax.

Since the Irish international bailout year of 2010 when Nicolas Sarkozy, then French president, suggested that the low Irish headline corporate tax rate of 12.5% should be raised, it has been commonly believed in Ireland that the French were hypocrites because they had even a lower effective rate than Ireland's.

The 'Paying Taxes' annual report that is produced by PwC, the Big 4 accounting firm, for the World Bank, showed in that year that France had an 8.2% effective rate compared with Ireland's 11.9%.

Government ministers, with the help of the media, have repeatedly used this data to show up the French as hypocrites while countering arguments that foreign firms availed of very low single digit Irish effective rates.

The PwC template firm is a ceramic flower pot maker with 60 employees and no exports.

'Paying Taxes 2016' has a profits tax rate of 0.5% for France, as a tax credit of 6% of salaries up to a limit was introduced in 2014, cutting the 'total tax rate' used in the report by 6%. France also adjusted social security contributions.

There was hypocrisy from both the French and Irish politicians.

The OECD said in its Economic Survey of France 2013:

France’s high statutory tax rate is coupled with low revenues, measured either as a share of GDP or total tax revenues (Figure 1.7) because of the large number of loopholes and tax breaks. As the Conseil des Prélèvements Obligatoires (French Tax and Social Charges Board,2009) points out, the result is an effective tax rate paid on realised profits of only 8% for companies included in the CAC40 (the main index of the Paris stock exchange) and 22% for SMEs. More generally, the report finds that the effective tax rate diminishes as company size increases. The three major tax expenditures include: i) the tax consolidation regime, whereby the profits and losses of individual companies belonging to the same group may be consolidated (CPO, 2010), ii) the deductibility of interest payments on debt financing, and iii) the tax credit on investment in research and development. The way global corporations consolidate their profits depends on tax rates in other countries, so having a high nominal tax rate naturally encourages businesses to pay taxes elsewhere. If interest income is taxed at the household level, interest deductibility can be justified to avoid double taxation. The government’s decision to cap the deductibility of interest payments on borrowing goes in the direction of double taxation but at the same time will reduce the differential cost of debt and equity financing.

Total, the French oil giant, had a 0% tax rate in 2009.

France, effective corporate tax rate, Ireland

OECD Economic Survey of Farnce 2013

A report states that the French subsidiaries of foreign groups account for over 2.5m jobs and 20% of the country’s R&D activities. Almost 40% of exports are related to these overseas companies set up in France. Since 2007, and in spite of the crisis, new investments by foreign companies in France have enabled “the maintenance or creation of around 30,000 jobs every year,” notes the AFII (Association Française pour les Investissements Internationaux or Invest in France Agency).

In recent years the Irish Government has made a flawed argument that it was a "flawed premise" to include the profits in Irish offshore shell companies in calculating the effective tax rate for US affiliates in Ireland.

Based on reporting to the US government, we calculated that the rate was 2.6% in 2010. In 2012 Apple's foreign tax rate was 2%.    

Ireland: Apple's foreign tax rate rises to 6% from 2% in 2012

It was misleading that the French effective rate was presented as typically 8%; it was misleading to claim that the Irish rate applying to foreign firms was close to the headline rate of 12.5% — it ignored the fact that the profits were shifted from Irish onshore companies to offshore companies while in the case of Apple most of its foreign profits were booked in the Irish shell companies, which used the address of Apple's Cork facility.