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Tax reforms accelerating to boost investment

Corporate income tax rates have continued to be reduced in Argentina, France, Latvia and the United States with an aim to boost investment, The Organisation for Economic Co-operation and Development’s (OECD) Tax Policy Reforms 2018 found.

The average corporate income tax rate across the OECD dropped from 32.5% in 2000 to 23.9% in 2018.

While this trend has gained renewed momentum in recent years, the OECD said corporate tax rate reductions are ‘less pronounced’ than before the crisis.

The report showed that significant tax reform packages were introduced in Argentina, France, Latvia and the United States, with a focus on enhancing investment and some measures designed to enhance fairness. In other countries, tax measures were introduced in ‘a more piecemeal’ fashion.

The continuation of the trend towards corporate income tax rate cuts was mainly driven by a number of large countries which have traditionally had high corporate tax rates.

THE OECD’s Centre for Tax Policy and Administration’s director Pascal Saint-Amans said: “Among the countries that introduced significant corporate tax reforms were a number with high corporate tax rates, were tax reform was long overdue.

“While these corporate tax cuts have created some concerns of a ‘race to the bottom’, most of these countries appear to be engaged in a ‘race to the average’ with their recent corporate tax rate cuts now placing them in the middle of the pack. We will be closely watching how other countries respond to this trend in the future.”

The report also found environmental-related tax reforms have continued to focus on energy taxes, where efforts have been made to go beyond road transport. However, tax reforms outside of energy and vehicles, such as taxes on waste, plastic bags or chemicals, have been much less frequent.

Wide discrepancies in views for taxing highly digitalised businesses across countries has prevented the adoption of a common approach so far and ‘spurred’ the introduction heterogeneous measures, creating a risk of ‘increased complexity and uncertainty’.

Tax Policy Reforms describes the latest tax reforms across 35 OECD members, Argentina Indonesia and South Africa.

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