European governments are leading a race to the bottom which will see average global corporate tax rates hit zero by 2052, according to new findings out today. A detailed analysis of 17 EU member states and Norway reveals 12 governments have either just cut their corporate tax rate, or are planning to do so in the near future.
As big businesses are made to pay less corporate tax, consumers have to pay more in order to fill the gap. As today's report points out, this disproportionately hits the poorest and risks exacerbating inequality rather than reducing it.
Tax Games – the Race to the Bottom: Europe’s role in supporting an unjust global tax system 2017 - also reveals that:
- Half the countries analysed have harmful tax practices, which can be used by multinational corporations to avoid taxation.
- Of the 18 countries analysed, 12 have a ‘highly problematic’ tax treaties, which can undermine tax collection in developing countries.
- Transparency is coming, but it’s an uphill climb. A third of the countries analysed are leading the fight against secret shell companies by introducing public company registers which show the real – beneficial – owners. However, secret company ownership is still possible in 12 of the analysed countries, and the UK still offers opportunities for setting up anonymous trusts.
- The majority – ten of the analysed countries – seem reluctant or outright opposed to the idea of letting citizens to see where multinational corporations do business, and how much they pay in taxes, while 13 out of 18 countries are openly against the idea of an intergovernmental UN negotiation to stop tax havens.
The UK has a mixed record, according to the report's findings. It is actively participating in the global race to the bottom on corporate taxation, and it plays a key role as a conduit country, which can be used by multinational corporations as a route to channel profits into tax havens. On transparency, the UK was a first mover when it established a public register for the real owners of companies, but the government has so far been unwilling to introduce public transparency around the beneficial owners of trusts, and has not managed to ensure transparency within its overseas territories. Similarly, its position on public country by country reporting is that of being both for (when it comes to the global level) and against (when it comes to being a first mover). Meanwhile, the UK tax treaty network remains an issue of significant concern, and the UK government does not support the establishment of an intergovernmental UN tax body, which would give developing countries a truly equal say in global decision-making on tax matters.
Will Snell, Director of Tax Justice UK, commented: "This comprehensive report shows that the UK government has failed to clean up its act on tax avoidance and tax competition, both domestically and at the global level. The UK positions itself as a leader on tax transparency, but it has not followed up on the early progress that it made on beneficial ownership registers for UK companies. Instead it has prevaricated on extending these measures to trusts and to its overseas territories, has actively blocked other reforms at the global level, and has undermined tax revenues both domestically and overseas by continually reducing its corporate tax rate."
Tove Maria Ryding, tax coordinator at Eurodad, said: “Governments have promised to make multinationals pay tax, but instead they’re slashing the corporate tax rate in a very costly and destructive race to the bottom. Looking at the EU and Norway, we found 12 governments that have either just cut the corporate tax rate, or are planning to do so in the near future. Governments were supposed to stop corporate tax avoidance – not get rid of corporate tax. Meanwhile, the cost of corporate tax dodging is not just felt in Europe. Developing countries continue to pay a high price for a global tax system they didn’t create. Corporate tax income is a vital source of income for developing countries, who need money to fund schools and hospitals."
The findings are published in Tax Games – the Race to the Bottom: Europe’s role in supporting an unjust global tax system 2017, the fifth annual report examining the tax and transparency policies of the European institutions, 17 Member States and Norway.