U.S. corporate tax code still below average, study finds

The U.S. Tax Code’s competitive effect on global corporations remains in the lower half of a ranking from the conservative Tax Foundation, even after the 2017 tax cut that was intended to make it easier for American companies to compete abroad.

The U.S. ranked 21st for competitive corporate tax rules, and 28th for taxes on foreign corporate profits, among 36 countries in the Organization for Economic Cooperation and Development, according to the Tax Foundation.

The tax group gave the highest competitiveness rankings to the countries with the lowest rates and easiest processes to comply with the tax laws. The top-ranked country on their list was Estonia.

Before President Donald Trump signed the sweeping tax overhaul in late 2017, U.S. corporate taxation ranked 35th out of 36 in terms of competitiveness. The international taxation rules ranked 33rd.

U.S. President Donald Trump signs a tax-overhaul bill into law in the Oval Office of the White House in Washington, D.C., U.S., on Friday, Dec. 22, 2017. This week House Republicans passed the most extensive rewrite of the U.S. tax code in more than 30 years, hours after the Senate passed the legislation, handing Trump his first major legislative victory providing a permanent tax cut for corporations and shorter-term relief for individuals. Photographer: Mike Theiler/Pool via Bloomberg
President Donald Trump signs the tax reform bill into law on Dec. 22, 2017.

The U.S. reduced the corporate rate to 21 percent from 35 percent in the tax overhaul. The law also revised international tax rules to move toward a so-called territorial tax system, which means that only domestic profits are taxed. The law included exceptions that still allow some levies on some foreign profits.

“The U.S. is slightly more competitive partially because we have moved slightly toward a territorial system, but the rules that we use to tax profits overseas are still kind of middle-of-the-road if not lower half of the distribution,” Daniel Bunn, the Tax Foundation’s director of global projects, said Thursday.

Critics of the the Republican tax overhaul say the rules for offshore profits are highly complicated and many U.S. companies are paying more taxes on foreign profits than lawmakers advertised when they passed the law. Previously, foreign profits were taxed at the 35 percent rate, but companies could defer the levy until they brought the money back to the U.S.

Other countries, including Ireland, the Netherlands and Finland, have also passed more restrictive international tax rules that moved them closer to the U.S.

“If you were already the unattractive person at the party, and a couple more of your unattractive friends arrive and maybe the average attractiveness goes up,” Bunn said.

-- Laura Davison (Bloomberg News)