In the U.S. and across Europe, an international race to cut corporate tax rates is underway and picking up steam.
Corporate tax rates took center-stage in the international arena this summer for several key reasons, including: the European Union’s (EU) war on multinational corporations in Ireland, the Brexit decision, and the emergence of President-elect Donald Trump.
The European Commission slapped Apple with $14.5 billion in back taxes, which were previously unpaid because of a favorable tax deal with Ireland. The Commission’s decree put corporate tax rates in the global spotlight, as it revealed that Ireland has one of the lowest corporate tax rates in the industrialized world. This low rate attracted droves of multinational corporations to Ireland, and as a result, the nation’s economy grew 26.3 percent in 2015 alone. (RELATED: EU Levies $14 Billion Tax On Apple, INSISTS Ireland Take The Money)
The Brexit decision also sparked a great deal of corporate tax discussion this summer, as many speculated that the seafaring nation would have to drastically cut its corporate tax rate “in half,” to compete with the EU and western nations. British Prime Minister Theresa May promised to give Great Britain the lowest corporate tax rate of the world’s top 20 economies on Monday, in an effort to entice global business to invest “in Britain for the long term.” Great Britain, specifically London, has been a hub for banking, finance, investment, and for those firms looking to make headway in the European market.
President-elect Donald Trump promised to cut the U.S. corporate tax rate from 35 percent to 15 percent. America has the third highest corporate income tax rate among the top 35 industrialized nations, which chases businesses, jobs, and tax revenue out of the U.S. The U.S. corporate tax rate is “16.4 percentage points higher than the worldwide average of 22.5 percent and a little more than 9 percentage points higher than the worldwide GDP-weighted average of 29.5 percent,” according to the Tax Foundation.
Both May and Trump face political obstacles and financial realities. Trump must work with Congress and the American people to get his proposed tax changes enacted. May backed the tax cut pushed through the British Parliament earlier this year, but has failed to adopt the 15 percent corporate tax rate proposed by her predecessor, the Journal reports. Her challenge has been, and will continue to be, convincing business that Great Britain is the place to set up shop.
The international move to lower corporate tax rates comes during a period of broader tax changes over the past decade. Specifically, closing loopholes that allow large multinationals to shift profits to places with lower corporate and income tax burdens. This has been the focus of the European Commission over the past few months, and was one of the main components of Trump’s economic message during the presidential race.
The move to lower corporate tax rates is not solely relegated to the U.S. or Great Britain. Japan, Italy, and many other European nations have altered or substantially lowered their rates over the past few years.
(RELATED: Which Candidate Is Better For Your Bottom Line: Trump Or Clinton?)
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