Escaping the shakedown

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: When the Irish government, reeling from bank failures and a monumental property crash, unveiled an austerity Budget in April, it socked individuals with higher taxes. But it left its corporate-tax rate—the lowest among OECD countries—unchanged at 12.5%. Last year, Germany cut its corporate-tax rate from 39% to 30%. Canada is pressing ahead with plans to lower its combined federal-provincial rate to 25%. Russia has also reduced its corporate taxes, and Singapore intends to do so. According to the International Bureau of Fiscal Documentation (IBFD), an Amsterdam-based group that follows international tax developments, no country plans to raise its main corporate levy.

Despite spiralling budget deficits and the widespread belief that corporate greed precipitated the credit crunch, governments do not seem inclined to call on businesses to fill their empty coffers. Last August, Japan, which has the OECD’s highest corporate-tax rate, proposed exempting dividends paid to Japanese multinationals by foreign subsidiaries from tax, even as it planned, in effect, to raise more from individuals by increasing value-added tax. The dividend exemption came into force in April. In the same month, Britain unveiled a budget that, like Ireland’s, promised to clobber wealthy individuals but, like Japan’s, exempted dividends paid by foreign subsidiaries from tax.

This forbearance is all the more remarkable given that corporate-tax rates in many countries are far lower than they were in the 1990s (see chart). Firms have also done well from stimulus packages: at least a dozen countries have offered them accelerated depreciation allowances or more generous tax-loss provisions, according to IBFD. Some governments are still trying to increase their appeal to foreign investors: Ireland is improving the tax treatment of intellectual property.

At the margins, however, the environment for corporations is shifting. Dali Bouzoraa, the IBFD’s technical director, says the decade-old trend of lower corporate-tax rates is bottoming out, both because governments cannot afford further cuts and because for some, going lower would turn them into tax havens, subject to punitive treatment by trading partners. What is more, countries are working harder to combat the shrinkage of their tax bases as more companies try to shelter profits abroad.