CORPORATE TAXES (3)

As part of a growth package two years ago, the Danish Government decided to cut the rate of corporation tax from the then 25% to 22%. This was not done immediately; in 2014 it was reduced to 24.5%, this year it's 23.5%, and it will go down to 22% next year.

As I said in an earlier post, if all flows into and out of a company (sales, wages, purchases, investments, dividends etc) are taxed, it's not at all clear that there is any point in taxing what remains, namely a company's profits. However, what is undeniably true is that in the absence of a worldwide move to abandon taxes on corporate profits, it matters to companies, and in particular to international companies, what the rates are in different countries.

Those rates vary quite a lot. In 2014, within the E.U., it varied from 35% in Malta, 33.99% in Belgium and 33.33% in France to 15% in Lithuania and Latvia, 12.5% in Ireland and Cyprus, and 10% in Bulgaria. Retaining an additional 25% of your profit instead of giving it to the taxman (however worthwhile that might be) is a hefty bonus. Assuming of course that you can make money in Bulgaria.

The U.K., which had a rate of 21% in 2014, is cutting it to 20% this year and 18% in 2020; other countries are thinking of doing the same. In general, the trend over the past 20 years has been downward. Though whether it will reach zero is a different matter entirely.

Walter Blotscher