Having Their Cake and Eating It Too – the Great Corporate Tax Break

By Kristian Weise, Policy Research Officer ICFTU

A major report released by the ICFTU uncovers the disturbing extent of corporate tax avoidance and evasion and warns that unless governments cease engaging in the race to lower corporate taxes, both industrialized and developing countries will face a major public funding crisis.

The figures in the report show that:

- Average corporate tax rates in industrialized countries have fallen from 45 per cent to 30 per cent in two decades due to tax competition,

- if corporate taxation keeps receding at the current rate, corporate tax rates will hit 0 per cent by the middle of the century,

- conservative estimates show that developing countries lose US$50 billion annually due to tax havens,

- out of the 275 largest corporations in the US, 82 paid no tax in or received a tax refund in at least one of the years between 2001 and 2003,

- the number of Export Processing Zones has risen from 850 in 1998 to more than 5,000 in 2004, despite their generally bad track record on labour rights,

- in 2001, the amount of income estimated to be lost in the US due to the abuse of transfer pricing alone was US$53.1 billion,

- as a share of total taxation, corporate taxes have dropped by 15 per cent in the UK and by 22 per cent in Italy since the 1980s, by 41 per cent in Germany and by 43 per cent in Japan since the 1970s and by 53 per cent in the US since the late 1960s.

The report documents the many innovative ways in which companies are escaping their tax obligations, either through exploiting legal loopholes or by simply engaging in illegal behavior. These innovative accounting practices, enabled by the exponential rise in multinational companies, include transfer pricing, income stripping and the parking of intellectual property.