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Japan Plans to Cut Corporate Tax Rate, Leaving U.S. Further Behind

1 min readBy: William McBride

Japan looks likely to cut its corporate taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. rate by 2 to 3 points in 2015, according to Bloomberg:

Japan’s corporate income taxA corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax. may be cut by more than 2 percentage points next year and reduced to less than 30 percent within five, Economy Minister Akira Amari said.

“Reports of a cut of 2.4 percent or 2.5 percent aren’t far from the truth,” Amari said today in Tokyo, referring to reductions in the company tax rate for next fiscal year. “We want it done in as few years as possible, and to have an impact.”

Japan currently has a corporate tax rate of 37 percent, the second highest in the developed world after the U.S., which has a corporate tax rate of 39.1 percent (federal plus state). With this cut, Japan would be roughly tied with France for the second highest corporate tax rate in developed world, at 34.4 percent.

Spain has also announced a 2 point cut in its corporate tax rate for 2015, as has Portugal, with plans to go lower.

Factoring in these announcements for 2015 means the U.S. is falling further behind in terms of corporate tax competition, as the following chart shows. In 2015, the average corporate tax rate in the developed world outside the U.S. will be 24.6 percent, which is 14.5 points lower than the U.S. corporate tax rate.

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