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December 7, 2022 OECD releases corporate tax statistics and the 2022 revenue statistics and consumption tax trends
Executive summary On 17 November 2022, the OECD released the fourth edition of its annual Corporate Tax Statistics publication (the Corporate Tax report) together with an updated database. The OECD describes the database as intended to assist in the study of corporate tax policy and expand the quality and range of data available for the analysis of base erosion and profit shifting (BEPS) activity. The database includes anonymized and aggregated country-by-country (CbC) reporting statistics, reflecting information for the year 2018 and including information from CbC reports filed in 47 jurisdictions, together with a list of Frequently Asked Questions on the anonymized and aggregated CbC reporting data. The database also includes information on 60 intellectual property (IP) regimes in 45 jurisdictions and withholding tax rate statistics for 112 jurisdictions, including withholding tax rates on dividends, interest and royalty payments that are applicable as of the 2022 fiscal year. On 30 November 2022, the OECD released its 2022 Revenue Statistics report, showing that tax-to-GDP ratios increased in 24 of the 36 OECD countries for which 2021 data on tax revenues was available, declined in 11 and remained unchanged in 1 country. On the same date, the OECD also released its 2022 Consumption Tax Trends report, showing that consumption tax revenues have slightly decreased overall in 2020 to 9.9% of GDP in OECD countries on average, although consumption tax-to-GDP ratios increased in nine countries and one country saw no change in this ratio. Detailed discussion Background In October 2015, the OECD released the final reports on all 15 Action areas in its BEPS project.1 The recommendations made in the reports ranged from new minimum standards to reinforced international standards, common approaches to facilitate the convergence of national practices, and guidance drawing on best practices. The BEPS Action 11 report, titled Measuring and Monitoring BEPS, focused on estimating the scale of BEPS activity, identifying indicators of BEPS, and providing recommendations for improving the measurement of BEPS. On 15 January 2019, the OECD released the first edition of the Corporate Tax Statistics database, which provided internationally comparable statistics and analysis covering approximately 100 countries on four main categories of data: (i) corporate tax revenues; (ii) statutory corporate income tax rates; (iii) corporate effective tax rates; and (iv) tax incentives related to innovation.2 On 8 July 2020, the OECD released the second edition of the database, including the first release of anonymized and aggregated data collected through CbC reports filed for 2016.3 On 29 July 2021, the OECD released the third edition of the database.4 Corporate Tax Statistics: Fourth Edition The fourth edition of the OECD’s Corporate Tax report and database compile new data items and statistics in various existing data sets held by the OECD, with the aim of supporting the analysis of corporate taxation, in general, and of BEPS activity. According to the OECD press release, the new data released highlights continuing BEPS risks and the need to implement the two-pillar solution for addressing the tax challenges of the digitalization of the economy developed under the BEPS 2.0 project in order to ensure that large multinational enterprises (MNEs) pay a fair share of tax wherever they operate and earn their profits. In addition, the data also represents a boost in tax transparency efforts by including aggregated CbC reporting data on the activities of almost 7,000 MNEs. The fourth edition of the database contains the following categories of data:
Corporate tax revenues The database includes information on 118 jurisdictions from 1965-2019 (for OECD member countries) and 1990-2019 (for non-OECD member jurisdictions). In 2019, the share of corporate tax revenues in total tax revenues was 15% on average, and the share of these revenues as a percentage of GDP was 3.1% on average. According to the Corporate Tax report, the data released shows that corporate income tax is a significant source of tax revenues for governments to fund essential public services, especially in developing and emerging market economies. On average, corporate income tax accounts for a higher share of total taxes in Africa (18.8%), Asia and the Pacific (18.2%), and Latin America and the Caribbean (15.8%) than in OECD member countries (9.6%). Statutory corporate income tax rates The database covers 117 jurisdictions from 2000-2022. The report indicates that statutory corporate income tax rates have been decreasing on average over the last two decades, although considerable variation among jurisdictions remains. The average combined (central and sub-central government) statutory corporate tax rate for all covered jurisdictions was 20% in 2022, compared to 28% in 2000. Across the 117 jurisdictions covered in 2022, 19 had corporate tax rates equal to or above 30% in 2022, two jurisdictions had a corporate tax rate of less than 10%, and 12 jurisdictions had no corporate tax regime or a corporate tax rate of zero. Further, comparing corporate tax rates between 2000 and 2022, 97 jurisdictions had lower tax rates in 2022, 14 jurisdictions had the same tax rate, and 6 had higher tax rates. Corporate effective tax rates The database contains four forward-looking effective tax rate (ETR) tax policy indicators, calculated using information about specific tax policy rules and focusing on the effects of tax depreciation rules and several related provisions (e.g., allowances for corporate equity, half-year conventions, inventory valuation methods) as of 1 July for the years 2017-2021: (i) the effective marginal tax rate (EMTR); (ii) the effective average tax rate (EATR); (iii) the cost of capital; and (iv) the net present value of capital allowances as a share of the initial investment. Unlike backward-looking ETRs, these indicators do not incorporate any information about firms’ actual tax payments. All four tax policy indicators are calculated by applying jurisdiction-specific tax rules to a prospective, hypothetical investment project. Calculations are undertaken separately for investments in different asset types and different sources of financing (i.e., debt and equity). The Corporate Tax report notes that the average EATR across jurisdictions (20.2%) is 1.2 percentage points lower than the average statutory tax rate (21.4%). Of the 77 jurisdictions covered for 2021, 65 provide accelerated depreciation, meaning that investments in these jurisdictions are subject to EATRs below the statutory tax rates, and eight jurisdictions had an allowance for corporate equity (ACE) provision in their tax code leading to an additional reduction in their EATRs. Moreover, EMTRs in jurisdictions with an ACE rule are among the lowest. Tax incentives for research and development (R&D) The database includes two sets of R&D tax incentives indicators that offer a complementary view of the extent of R&D tax support provided through expenditure-based R&D tax incentives. The first set of indicators reflects the cost of expenditure-based tax incentives to the government, and the second set of indicators are synthetic tax policy indicators that capture the effect of expenditure-based R&D tax incentives on firms’ investment costs. Both indicators are available for 49 jurisdictions for the period 2000-2019. The Corporate Tax report states that R&D tax incentives are increasingly being used to promote business R&D with 33 out of the 38 OECD member jurisdictions offering tax relief with respect to R&D expenditures in 2020, compared to 20 in 2000. Further, most jurisdictions use a combination of direct support and tax relief to support business R&D, but the policy mix varies. Nineteen OECD member jurisdictions offer refundable (payable) tax credits or equivalent incentives. Moreover, R&D tax incentives have become more generous, on average, over time. According to the Corporate Tax report, this is due to the higher uptake and increased generosity of R&D tax relief provisions. While this trend stabilized between 2013 and 2019, an increase is again observed for 2020 and maintained through 2021 with the enhancement of R&D tax relief provisions in a number of OECD member countries and European Union Member States following the outbreak of the COVID-19 crisis. Action 13 implementation and anonymized and aggregated CbC reporting data The Corporate Tax report covers the fiscal year 2018. Seventy-six jurisdictions required mandatory filing of CbC reports for 2018. Of the jurisdictions receiving CbC reports, only 52 were considered to have received a sufficient number of CbC reports to be able to provide aggregated statistics while ensuring taxpayer confidentiality. Of these 52, this edition of the database presents CbC reporting statistics from a total of 47 jurisdictions, including information on the activities of almost 7000 MNEs. The Corporate Tax report notes that the aggregated CbC reporting data is subject to limitations5 that need to be kept in mind when carrying out any economic or statistical analysis. Next year’s edition of the Corporate Tax Statistics database will include two years of new CbC reporting data. The Corporate Tax report states that the latest release of anonymized and aggregated CbC reporting data (covering 2018) provides some fresh insights on BEPS activity, showing evidence of misalignment between the location where profits are reported and the location where economic activities occur, as well as significant differences in the distribution of employees, tangible assets, and profits across jurisdiction groups. Revenues per employee tend to be higher where statutory corporate income rates are zero and in investment hubs. On average, the share of related-party revenues in total revenues is higher for MNEs in certain jurisdictions. For example, the share of related-party revenues in total revenues is higher in investment hubs than in high- or middle- and low-income jurisdictions. In investment hubs, related-party revenues account for 35% of total revenues, whereas the average share of related-party revenues in high- and middle- and low-income jurisdictions is around 15%. While the Corporate Tax report notes that the most recent data reflects an improvement in coverage and disaggregation, it further indicates that the coverage and quality of this new dataset are expected to continue to improve for future editions, as MNEs improve the consistency of their reporting, jurisdictions improve the consistency of their data collection practices, additional jurisdictions provide data and issues with the initial years of data collection are addressed. Intellectual property regimes The database includes information both on regimes that narrowly target IP income and on regimes that offer reduced rates for IP income and other types of income. Of the 60 IP regimes contained in the database, 33 were reviewed by the OECD Forum on Harmful Tax Practices as IP regimes only and 27 were reviewed as “dual category” regimes (i.e., IP and non-IP regimes). Further, 41 regimes were found to be not harmful, one was found to be harmful, and the remainder of regimes were either abolished, in the process of being amended or eliminated, or under review. In the Corporate Tax Statistics database, qualifying assets of IP regimes are grouped into three main categories: patents, software and a third category that is restricted to small and medium enterprises (SMEs). Of the 41 non-harmful IP regimes, all 41 offer benefits to patents, 30 offer benefits to copyrighted software and 15 offer benefits to the allowed category of assets restricted to SMEs which covers other IP assets that are non-obvious, useful, and novel. Tax rate reductions for the 41 non-harmful IP regimes range from a full exemption from tax to a reduction of about 40% of the standard tax rate. Withholding tax rates For the first time, and as envisaged in the 2015 BEPS Action 11 Report, the database includes withholding tax rate statistics in 112 jurisdictions. The Corporate Tax report indicates that withholding taxes are levied on businesses when they make payments to other foreign or domestic business entities or individuals (e.g., in the form of dividends, interest, and royalties), and withholding tax data can potentially provide insights on certain BEPS strategies such as treaty shopping or the strategic location of debt and intangible assets. Jurisdictions are categorized in three groups: high-income jurisdictions, low- and middle-income jurisdictions, and investment hubs. The report indicates that high-income jurisdictions levy an average standard withholding tax rate on dividends of 15.7%, compared to 11.3% in low- and middle-income jurisdictions and 5.5% in investment hubs. Furthermore, for interest payments, the average standard withholding tax rate in high income jurisdictions is 16.8% compared to 15.6% in low- and middle-income jurisdictions and 6.3% in investment hubs. In contrast, royalty payments are subject to an average standard withholding tax rate of 15.6% in high income jurisdictions and 16.3% in low- and middle-income jurisdictions. These rates are considerably higher than the average standard 3.7% withholding tax rate applied to royalties in investment hubs. Revenue Statistics 2022 On 30 November 2022, the OECD released the latest edition of its Revenue Statistics report. The OECD Revenue Statistics report provides data on the revenue systems in OECD member countries, with data starting from 1965. The Revenue Statistics, which are updated annually to reflect changes in tax laws and other developments, provide a detailed look at the sources of government revenue, including taxes on income, profits, and capital gains; payroll; property; goods and services; and other taxes. Compulsory social security contributions paid to governments are also treated as taxes. Further, the taxes imposed in each country are presented in a standardized framework based upon the OECD classification of taxes and its Interpretative Guide contained in Annex A to the Report. According to the latest edition, tax revenues bounced back in 2021 as OECD member countries recovered from the initial impact of the COVID-19 pandemic. The Revenue Statistics report shows that tax-to-GDP ratios increased in 24 of the 36 OECD member countries for which 2021 data on tax revenues was available, declined in 11 and remained unchanged in 1 country. Moreover, the 2022 edition of the Revenue Statistics report contains a special feature that examines changes in revenues from different tax types in 2020 and 2021 to show which tax types contributed most to changes in the OECD average tax-to-GDP ratio in 2021. In 2020, the latest year in which final data is available for all OECD member countries, social security contributions accounted for the largest share of tax revenues in the OECD, at just over one-quarter (26.6%), on average. Together with personal income tax (24.1%), these two tax types amounted to over half of tax revenues in OECD member countries. Value-Added Tax (VAT) accounted for one-fifth of total revenues (20.2%), with other consumption taxes generating a further 11.9%. Corporate income taxes accounted for 9% of total tax revenues in 2020, with property taxes (5.7%) and residual taxes accounting for the remainder. Consumption Tax Trends 2022 On 30 November 2022, the OECD released the 14th edition of its Consumption Tax Trends (the Consumption Tax report), which presents cross-country detailed comparative data on consumption tax rates, tax bases and design trends in OECD member countries and is released every two years. The latest edition presents cross-country comparative data on consumption taxes in OECD member countries, as of 1 January 2022. The Consumption Tax report shows that 26 OECD member countries have introduced new solutions developed by the OECD to collect VAT on e-commerce sales of goods imported from abroad. These complement measures to collect VAT on online services (e.g., applications and video-streaming), which have now been adopted by almost all OECD member countries that have a VAT. Further, 31 out of 37 OECD member countries with a VAT have now implemented digital reporting requirements, often requiring the electronic transmission of detailed transactional information in real time or periodically, to enhance VAT compliance. Furthermore, consumption tax revenues slightly decreased overall in 2020 to 9.9% of GDP in OECD member countries on average, down from 10% in 2019 and 10.2% in 2018. The overall share of consumption taxes in total tax revenue decreased to 30% in 2020, compared to 30.6% in 2019 and 30.8% in 2018. VAT produced 20.2% of total taxes in OECD member countries on average in 2020. This makes VAT by far the largest category of consumption taxes, generating almost three times as much tax revenues as excise duties, which form the bulk of taxes on specific goods and services and account for 6.9% of total tax revenues in 2020 on average. Implications The release of the Corporate Tax Statistics in general, and the aggregated CbC reporting data specifically, provides a source of information for analyzing the taxation of MNEs, but the data contains some significant limitations that need to be considered in using the information. Businesses may want to review the Corporate Tax report and database and consider the implications of the OECD's interpretations of the data, which can provide insights into the future direction of tax policy proposals. Overall, analyzing CbC reporting data and the rest of the statistical information released by the OECD can help businesses anticipate relevant tax policy trends. The OECD will continue to update the database and the statistical reports in the future. ______________________________________________________ For additional information with respect to this Alert, please contact the following: Ernst & Young Belastingadviseurs LLP
Ernst & Young LLP (United Kingdom)
Ernst & Young LLP (United States)
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