Companies pay less tax on global profits

Fall in total taxes by the average FTSE100 company from 2009

UHY Hacker Young, an accountancy group, says the total global taxes paid by the average FTSE100 company fell to 24.5 per cent of its global profits in 2012, compared with 35.8 per cent in 2009.

It attributes the fall to companies’ “greater profits overseas, allowing them to take advantage of lower prevailing tax rates in those jurisdictions”.

The UK coalition has reduced the headline corporate tax rate from 28 per cent to 24 per cent with plans to cut it further to 21 per cent by 2014. Countries such as Canada and Italy have also made their tax regimes more attractive for corporations.

However, the effective average corporate tax rate, which takes account of other features of the corporate tax environment, such as capital allowances and interest deductions, has not fallen by as much.

According to the Oxford University Centre for Business Taxation, this effective rate in the UK was 24.8 per cent in early 2012, down only 1 percentage point from 2009. This is because capital allowances have been reduced, as well as the headline rate.

Michael Devereux, an Oxford professor and director of the CBT, commented on the Hacker Young finding, saying that, “I suspect this does not reflect a real underlying trend.” Corporate tax receipts are known to be strongly cyclical.

Prof Devereux suggested instead that the tax treatment of losses that companies racked up during the crisis might have played an important role in any fall in the share of profits paid in taxes.

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