The Eight Countries Taxing Business Most

Many of the world’s industrialized countries have scrambled to cut their corporate tax rates to stay competitive in the face of the economic crisis. The United States is not among them. Recently, the U.S. became the industrialized nation with the highest statutory corporate tax rate.

Read The Eight Countries Taxing Business Most

The U.S. is not the only country with an above-average corporate tax rate. Among the 34 OECD countries, eight currently have corporate tax rates that exceed the group’s weighted average of 29.3%. 24/7 Wall St. has reviewed the tax rates of these countries and examined any recent changes countries may have made.

All of the countries with the highest corporate tax rates have particularly large gross domestic products, with six of the eight among the top 10 GDPs in the Organisation for Economic Co-operation and Development. Of course, this suggests that larger countries are relatively confident in their ability to keep businesses despite taxing corporations at higher rates. While this may be true, most of these countries also have cut back their rates recently.

In March, Japan reduced its corporate tax rate to 38.01%, making the U.S. rate of 39.2% the highest, according to a recent analysis by the Tax Foundation. Lowering the corporate tax rate had been on the country’s policy agenda for a number of years, and was passed in order to increase competitiveness.

The weighted average of the 22-non U.S. OECD nations’ corporate tax rates has decreased by 6.1 percentage points to 29.3% over the past decade. Meanwhile, the U.S.’s has only decreased 0.1 percentage points to 39.2%.

24/7 Wall St. used OECD’s listing of statutory corporate tax rates for 2011, with 2012 adjustments made where appropriate by the Tax Foundation. We also included GDP and government debt as a percent of GDP, both of which came from the OECD.

These are the eight countries taxing business most.

8. Spain
> 2012 tax rate: 30% (tied for 6th highest)
> 2002 tax rate: 35% (tied for 9th highest)
> GDP: $1.48 trillion (8th highest)
> Gov’t debt as pct. of GDP: 66.1% (17th highest)

Although Spain has cut its corporate tax rate from 35% to 30% over the past decade, its competitiveness may not have improved . The country’s corporate tax rank among OECD countries has increased from ninth highest to sixth highest — tied with Mexico and Australia. Additionally, the country’s tax rate may soon increase again. Spain continues to be at risk of financial meltdown and has announced plans to cut its budget gap by one third. Part of this process will include increased taxes on corporations.

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7. Mexico
> 2012 tax rate: 30% (tied for 6th highest)
> 2002 tax rate: 35% (tied for 9th highest)
> GDP: $1.65 trillion (7th highest)
> Gov’t debt as pct. of GDP: n/a

Mexico’s corporate tax rate has been close to the OECD average for the past decade, although it is currently slightly higher. In 2002, the country had a tax rate of 35%. By 2007, this rate had decreased to 28%. In response to the global economic crisis and the country’s own budget deficit, Mexico’s President Felipe Calderon proposed raising this rate to 30%. This proposal was adopted in 2010. As of now, the country plans to scale back the corporate tax rate to 29% in 2013, and 28% in 2014 and future years.

6. Australia
> 2012 tax rate: 30% (tied for 6th highest)
> 2002 tax rate: 30% (tied for 16th lowest)
> GDP: $0.92 trillion (12th highest)
> Gov’t debt as pct. of GDP: 25.3% (2nd lowest)

Despite having a particularly low government debt relative to its GDP, Australia has one of the highest corporate tax rates among developed nations. The nation has plans to cut its current corporate tax rate of 30% down to 28% over two years, starting in 2013, to make the country more competitive with international trading partners. According to The Australian, these “changes to the corporate tax rate will cost the government $200 million in the first year, and then up to $2 billion each year after that.” However, this shortfall is expected to be covered by new taxes on natural resources.

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5. Germany
> 2012 tax rate: 30.2%
> 2002 tax rate: 38.9% (4th highest)
> GDP: $3.07 trillion (3rd highest)
> Gov’t debt as pct. of GDP: 87.0% (10th highest)

Germany has the fifth-highest corporate tax rate among developed nations at 30.2%. Yet this does not appear to have hindered the country’s economy. Germany has the third-largest GDP in the OECD and is home to the only economy in the European Union that is expanding significantly. Since the 1980s, Germany had one of the highest corporate tax rates, and as recently as 2000 the rate was 48.55%.

4. Belgium
> 2012 tax rate: 34%
> 2002 tax rate: 40.17% (2nd highest)
> GDP: $0.41 trillion (15th highest)
> Gov’t debt as pct. of GDP: 100.7% (7th highest)

Over the past decade, Belgium has cut its corporate tax rate by more than six percentage points, dropping its rank among developed nations from second to fourth. It remains particularly high, however. According to the American Chamber of Commerce in Belgium, the country’s high corporate tax rate is “a major reason for the 75% decrease in foreign direct investment in Belgium since 2007.”

3. France
> 2012 tax rate: 34.4%
> 2002 tax rate: 35.43% (8th highest)
> GDP: $2.19 trillion (5th highest)
> Gov’t debt as pct. of GDP: 94.1% (8th highest)

Although France has decreased its corporate tax rate over the last decade, its rank relative to other developed countries has increased substantially. From 2002 to 2012, France’s rank moved from the eight-highest corporate tax rate to the third-highest. The French government announced in February of this year that it would be “harmonizing” its corporate tax rate with Germany by 2013. This is viewed as a step towards a EU-wide enforced tax rate.

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2. Japan
> 2012 tax rate: 38.01%
> 2002 tax rate: 40.87% (the highest)
> GDP: $4.30 trillion (2nd highest)
> Gov’t debt as pct. of GDP: 199.7% (the highest)

Japan had the highest corporate tax rate among industrialized nations until April 1 of this year, at which point it cut its tax rate from 39.5% to 38.01%. This new rate includes a 10% surtax that will expire after 2014. Before this cut, Japan held its position as the country with the highest corporate tax rate since 2001. According to Ernst & Young’s T Magazine, Japan’s government has wanted to increase tax competitiveness for many years. The magazine notes that 69 of Japan’s leading chief executive officers said that a reduction in the corporate income tax rate was their second-highest priority.

1. United States
> 2012 tax rate: 39.2%
> 2002 tax rate: 39.3% (3rd highest)
> GDP: $14.58 trillion (the highest)
> Gov’t debt as pct. of GDP: 93.6% (9th highest)

While the weighted average corporate tax rate of OECD countries has decreased by more than six percentage points over the past decade, the United States’ corporate tax rate has merely dropped from 39.3% to 39.2%. This relative lack of movement has propelled the U.S. to the top of list of corporate tax rate among industrialized nations. The U.S. is also the only OECD country to currently tax companies’ profits earned abroad. The country continues to have the world’s largest GDP.

Charles B. Stockdale