According to the Wall Street Journal, “for years, countries have been competing with each other over corporate tax.” Many different countries want to create the most favorable tax environments for businesses in order to encourage companies to locate within that particular country's borders. Now, with the election of Donald Trump, the United States could also join the competition... which could result in a race among countries to further slash tax rates.
The proposals of Trump, as well as actions taken by U.K. Prime Minister Theresa May, are likely to supercharge the global competition to cut corporate taxes. Businesses should be aware of the important changes taking place in the global marketplace and should work with a Maryland business tax lawyer to take advantage of shifts in tax law that can help their organizations.
Global Competition to Cut Corporate Taxes
The Wall Street Journal reports that the “international race to lower corporate taxes is back in the global spotlight.” In fact, this competition is heating up thanks to recent proposals announced in multiple different countries.
Theresa May's endorsement of a proposal by the British Conservative Government is one example of the enhanced competition among countries to attract companies by offering favorable tax conditions. The proposal that Mrs. May has endorsed is a suggestion to lower the U.K.'s corporate tax rate to 17 percent by 2020. The current corporate tax rate in the U.K. Is 17 percent.
Following Brexit, many U.K. officials believe that lowering tax rates could be essential to helping encourage companies to retain business interests in the U.K., rather than relocating to areas where the company will still be in an EU country and thus benefit from the free movement of labor as well as benefitting from the common market.
While Mrs. May's support of the tax cut could result in a big reduction in tax rates in the United Kingdom, it is not as big of a tax cut as others have suggested is appropriate. Following the Brexit vote, for example, Mrs. May's predecessor had suggested reducing the corporate tax rate in the U.K. to 15 percent.
Fifteen percent is also the corporate tax rate proposed by President Elect Donald Trump. Trump's election is likely going to usher in a big shift in the global tax structure for businesses, as Trump and the Republican majority have indicated that corporate (and personal) tax reform will be top issues.
Italy, France, Japan, and Canada have also made recent moves to try to spur investment by businesses within their countries by offering tax benefits. However, if Britain dropped its rates to 17 percent, it would have the lowest tax rate among the Group of 20, which is a group of the richest nations in the world.
Of course, if Trump was successful at lowering corporate tax rates in the U.S. to just 15 percent, the United States would end up with the lowest corporate tax rate.
Companies should monitor changes in their own country's tax rules, and should be aware of global efforts to foster innovation and investments by reducing taxes. Find out more from Kevin Thorn, a Maryland business tax lawyer, today.
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