New research covering 86 countries has confirmed that while low corporate tax rates can help give a country a significant competitive advantage over economic rivals, the advantage tends to be short term.
The study by KPMG International did say that while low rates are connected with higher-than-average economic growth, the rates should be backed up with a solid legal and economic infrastructure and targeted incentives if countries are to attract long-term, private sector investment.
The study looks at international movements in corporate tax rates over the past 14 years, drawing on the annual surveys the organization conducts.
The findings point to economic growth enjoyed over this period by countries such as Ireland, Norway, Sweden, and Denmark, and draws a parallel between this success and a favorable corporate tax regime. The latter trio enjoyed high growth rates while cutting corporate tax.
The main exception to this trend is the United States, which has maintained high levels of growth with a consistently high corporate tax rate of 40 percent.
“Once a major industrialized economy cuts its rates, others seem compelled to do the same, in a process of international tax competition that continues and intensifies over time,” said the head of KPMG’s Global Tax practice and U.K. firm partner, Loughlin Hickey, in a statement. “But given the intense global competition for tax revenue, it may make sense for governments to follow the example of the commercial sector and consider strategies other than simple price cuts to attract customers. It does not have to be a race to the bottom.”
The full report is available at http://www.kpmg.com/Services/Tax/IntCorp/CTR/.
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