Canada among low corporate tax jurisdictions as global average drops

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TORONTO, May 25, 2022 – Corporate tax rates in major economies around the world have fallen to new lows in recent years, including in Canada. A new study by UHY, the international accounting and advisory network, shows that corporate tax rates in the world’s major economies have fallen to an average of 25.1%, for companies making at least one million dollars (US) of profits. However, a new upward trend in rates has already begun, as corporate tax rates rise to fill government coffers emptied during the coronavirus pandemic.

Global corporate tax rates have steadily declined over the past few years, with the G7 average for a company recording profits of USD 1 million falling from 32% in 2014-15 to 26% in 2020/21. Many countries have sought to induce companies to invest in their economy with attractive tax rates. Former U.S. President Donald Trump slashed corporate tax rates to 21% in 2017 under the Tax Cuts and Jobs Act, a figure Canada has watched closely for the past two years.

While the world’s five lowest corporate tax rates are held by corporate tax havens (led by Ireland), the United States and Canada ranked ninth and tenth, respectively, out of 33 major economies. over the past two years. Canada’s corporate tax rate is lower than all regional jurisdictional averages, including the world and the G7, according to the average tax rates of 33 UHY international companies, assuming the companies make a profit of 1 million bucks.

The data of the Organisation for Economic Co-operation and Development (OECD) reflects data provided by UHY. Canada and the United States are close in terms of statutory (2021), average effective (2020) and marginal effective corporate tax rates (2020). “Countries around the world have wanted to stay competitive by keeping the corporate tax burden as low as possible in recent years,” said Subarna Banerjee, Chairman of UHY. “The cash-strapped governments of 2022 will now likely consider raising taxes on businesses.”

“Public finances will need to be shored up somehow and businesses may be an easier target politically than individuals. coming. ”

Lower rates will likely be a thing of the past

However, with the COVID-19 pandemic leaving a gaping hole in the public finances of countries around the world, UHY says the downward trend in corporate tax rates around the world should be over for the foreseeable future.

The UK government has already announced plans to raise corporate tax rates to 25% from April 2023, more than two percentage points above the European average. Argentina has already raised its corporate tax rate from 30% to 35% in 2021. US President Joe Biden has also pledged to raise federal corporate income tax to 28%. For its part, UHY says governments around the world should ensure that any move to raise corporate tax rates does not affect the lower rates used to encourage the growth of SMEs.

Subarna Banerjee continues: “SMEs are an essential component of international economies. In light of the post-covid recovery plans of many countries, it is encouraging to see so many people continuing to support these small businesses that are the enduring foundations of their economies. »

New realities could prevent further tax cuts

Due to mounting political pressure, some low-tax jurisdictions will likely have to raise their corporate tax rates for multinationals, according to UHY. The OECD announced in October that 136 countries had signed an agreement to apply a minimum corporate tax rate of 15% from 2023. The agreement will also allow countries to tax multinationals that make sales in their jurisdiction even if they have no physical establishment. presence there.

There is also little evidence to show that the 2017 US tax cuts boosted its economy. A Congressional Research Service Report found that the Tax Cuts and Jobs Act of 2017 had little measurable effect on the overall U.S. economy in 2018. In 2020, the COVID-19 pandemic created a global economic slowdown with significant losses of world jobs and high unemployment until recovery in 2021.

Global corporate tax rates fall to an average of 25.1%, according to the average tax rates of 33 UHY international companies, assuming the companies make a profit of $1 million. CLICK ON IMAGE TO ENLARGE.

Colin Ellis is editor of Canadian Accountant. With files provided by UHY UK.

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