Corporate tax
Corporate tax refers to a
direct tax levied by various jurisdictions on the
profits made by
companies or
associations. As a general principle, this varies substantially between
jurisdictions. In particular allowances for
capital expenditure and the amount of interest payments that can be deducted from
gross profits when working out the
tax liability vary substantially. Also, tax rates may vary depending on whether profits have been distributed to shareholders or not. Profits which have been reinvested may not be taxed.
For example, in the
United Kingdom, where the main corporate tax is called
corporation tax,
depreciation on many capital assets (excluding finance leases and certain intangible assets) is disallowable in computing taxable profits. Instead, capital allowances (usually at the rate of 25% per annum on a reducing balance basis) may be claimed. In
France, however, depreciation is allowable, within certain rates per classes of asset set down by statute.
A feature of a
classical tax system which includes corporate taxation is
double taxation, in that profits made by a company are subject to corporation tax, but further tax (usually
income tax) is payable by the company's
shareholders when the same profits are distributed by way of a
dividend.
However, under an
imputation tax system, some or all of the tax paid by the company may be attributed pro rata to the shareholders by way of a
tax credit to reduce the income tax payable on a distribution. For many years, from
1973 to
1999, the UK operated a partial imputation system, with shareholders being able to claim a tax credit reflecting
advance corporation tax (ACT) paid by a company when a distribution was made. A company could set ACT off against the annual corporation tax liability of the company.
Alternatively, in certain jurisdictions, distributions are be fully or partially exempt from tax—for example, certain jurisdictions, such as
Austria and
Germany, operate a "double income" system on distributions, with only half of the distribution is subject to tax, or, equivalently, the tax rate is halved, and the
Netherlands operates a
participation exemption under which certain distributions are exempt from tax.
In the United States, the present corporate income tax rate reaches just shy of 40 percent when adjusted for the inclusion of state income taxes. This is the second highest rate among the world's most developed economies (those in the OECD -- the
Organisation for Economic Co-operation and Development). Only Japan is higher. The median is 30.0%, with notably low rates for corporations headquartered in Ireland (12.5%), Hungary (16.0%), and Iceland (18.0%). [
1]
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Corporate welfare*
Excess profit tax
