Australian Government CrestInternational Comparison of Taxes

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5. Corporate taxation

Summary

In recent decades there has been a clear trend decline in the OECD-30 countries’ statutory corporate tax rates. From 2000 (the first year with comparable data combining rates from national and sub-national levels across countries), the fall in Australia’s corporate tax rate has exceeded those in the OECD-30 average and the OECD-10 average.

The decrease in statutory corporate tax rates across the OECD-30 has not led to a reduction in corporate tax receipts as a share of GDP because reductions in rates have often been partnered by a broadening of the tax base. In addition, there has been a rapid growth in company profits as a share of GDP.

Australia’s effective corporate tax rate has been relatively stable over the period since 1965, and at 20 per cent in 2004-05 was slightly above the historic average.

Classification issues make comparisons of the headline corporate income tax burden difficult. Subject to these limits, Australia has the highest corporate tax burden of the OECD-10 at 5.3 per cent of GDP, compared with the unweighted average of 3.4 per cent.

Australia’s 30 per cent statutory corporate rate is in line with the OECD-10 — it has the equal fourth lowest rate of the OECD-10 and is slightly below the OECD-10 average of 30.8 per cent. Australia’s 30 per cent statutory corporate tax rate is slightly above the OECD-30 unweighted average of 28.5 per cent and significantly below the weighted average of 35.6 per cent.

Australia has the equal lowest value of depreciation allowances of the OECD-10 countries if the value is measured as the present value of depreciation as a proportion of initial purchase price.

Despite moves in many OECD countries for a more neutral treatment between debt and equity financing of investments, there remain major differences in the effective marginal tax rates (EMTRs) of most corporate tax systems’ investments funded by debt or by equity.

The report also compares EMTRs and effective average tax rates (EATRs) in the corporate taxation area. Australia has the third highest EMTR (24.3 per cent) of the OECD-10 (except New Zealand) for a marginal investment in plant financed by equity. The average is 21.5 per cent.

  • For a similar investment financed by debt, Australia has the second highest EMTR (-23.1 per cent), compared with the average of -31.7 per cent.
  • When looking at investment in industrial buildings, the data show that Australia has the equal second lowest EMTR on equity financed investment.

Of the OECD-10, Australia has the fourth highest EATR (26.2 per cent) for an investment in plant and equipment financed by equity, with the average being 25.2 per cent.

  • For a similar investment financed by debt Australia has the second highest EATR (6.9 per cent) with the average being 5.6 per cent.
  • When looking at investment in industrial buildings, the data show that Australia has the equal second lowest EATR on equity-financed investment.

A number of countries, including Australia, have lower corporate rates or concessions for smaller companies or for start-ups.

Half of the OECD-10 countries permit loss carry back and over half allow the amortisation of goodwill, neither of which Australia permits.

With the exception of New Zealand, all of the OECD-10 countries impose some general form of corporate capital gains tax (CGT). There are significant variations in the rate of CGT depending on the nature and level of the shareholding.

5.1 Introduction

As discussed in Chapter 4, most aggregate measures of the corporate tax burden based on proportions of GDP have limited value because of statistical classification issues.

Data on average corporate tax rates are potentially more useful, but there are difficulties in making international comparisons. This is because of major differences in how countries classify corporate revenues and corporate profits and also differences in the way countries prepare national accounts (for example, in the case of Germany, total accrual taxation revenue in 2003 was €768 million according to Revenue Statistics, but €888 million on a national accounts basis).

Given these limits, there is a need to go beyond some of the aggregate measures to examine the impacts of corporate taxation on actual investment decisions and international competitiveness. In the remainder of this chapter, after examining the aggregate measures and their limits, there is a comprehensive discussion of corporate tax rates.

There is also a brief discussion of the conceptual choice of a corporate tax base because of the potential trade-offs between the corporate tax base and the corporate tax rate, as well as some efficiency differences between tax bases.

Some forward looking numerical approaches are then suggested, based around effective marginal tax rates (EMTRs) and effective average tax rates (EATRs) derived from particular international studies that look at a range of different investments and financing options.

There are a number of further insights from the detailed comparator tables in this chapter on depreciation arrangements including the treatment of goodwill, treatment of company losses, treatment of start-up companies and taxation of corporate capital gains.

 

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