Upcoming Corporate Tax Rate Reductions in Developed Countries

Average 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. rates have been falling around the world for several years, and this trend is likely to continue. The U.S. adopted a significant cut to its corporate tax rate in 2017, and many other countries adopted rate reductions in recent years.

A recent OECD report highlights a multitude of 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. policy changes that developed countries have recently adopted and provides a preview for their future plans. The report identifies Australia, the United Kingdom, and Greece as countries that have announced plans to cut their corporate tax rates. Several other countries are in the process of implementing plans to reduce their corporate rates in a gradual fashion.

Australia currently has a corporate tax rate of 30 percent, above the OECD average of 23.7 percent for combined corporate income tax rates. To have a more competitive corporate code, the Australian government is planning to reduce its corporate rate gradually to 25 percent by the 2026-27 fiscal year.

The United Kingdom determines its corporate tax rate each year. According to the report, the government has plans to lower the rate from 19 percent to 17 percent in 2020.

Greece has proposed cutting its corporate rate from 29 percent to 26 percent, but those plans are not guaranteed. Before it can be adopted, the Greek proposal requires evaluation by several other authorities including the IMF, the European Commission, the European Central Bank, the European Stability Mechanism, and the Greek authorities. If the proposal is approved, the lower corporate rate will be effective in 2020.

Argentina, France, Sweden, and Belgium are in the process of reducing their corporate tax rates based on plans that have already been adopted. Argentina adopted a tax reform package that reduced the statutory corporate income tax rate from 35 to 30 percent in 2018 and will reduce it again to 25 percent in 2020. France has been phasing in a reduction in its statutory corporate rate from 33.3 percent to 25 percent. This reduction will be concluded by 2022. Sweden is on schedule to reduce its corporate tax rate from 22 percent to 20.6 percent in 2021.

Belgium adopted a reform package that includes cutting the corporate tax rate in multiple steps. Under this plan, the statutory rate was reduced from 34 percent to 29 percent in 2018, and a further reduction to 25 percent will occur by 2020.

Because corporate taxes are harmful to economic growth, reducing corporate tax rates can be beneficial. Countries should continue to review how their tax policy impacts investment and employment to avoid damaging their potential for growth.

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