• Six countries look to drive competition by reducing corporate tax rates
• 37% forecast higher tax burdens as a result of digitally focused law changes
• Long-term trend for a low-rate, broad-base tax system set to reach tipping point

Countries continue to look to stimulate economic activity and attract foreign direct investment by maintaining or lowering their corporate tax rates. The fall in the US rate of more than a third to a federal/state combined average of around 26% represents the biggest percentage reduction among all countries analyzed in the report, and sees the US rate fall below current OECD and G7 averages. Significant rate reductions in FY18 were also made by Argentina (reduced from 35% to 30%), Colombia (40% to 37%), and Luxembourg (27% to 26%).

Chris Sanger, EY Global Tax Policy Leader, says:

“The long-term trend of having a low-rate, broad-base tax system that has been playing out for many years continues in 2018. Six of the 41 jurisdictions (15%) surveyed in our latest outlook have lower headline corporate income tax rates in 2018.”

The report indicates that we may be set to reach a tipping point in relation to this trend, with eleven jurisdictions (27%) forecasting a lower overall corporate income tax (CIT) burden in 2018 (vs. 20% in 2017), while seven (17%) forecast a higher overall CIT burden in 2018 (vs. 22% in 2017).

This year’s outlook also finds that research and development (R&D) and other business incentives are benefitting from governments’ drive to remain competitive, with 14 of 41 countries (34%) forecasting greater support for businesses in 2018. Six jurisdictions (China, Denmark, Germany, Hong Kong, Italy and Singapore) are enhancing both R&D and other business incentives in 2018.

The findings indicate that US tax reform – combined with other converging developments including implementation of the OECD’s Base Erosion and Profit Shifting (BEPS) recommendations, new EU anti-avoidance directives, and tax transparency and disclosure measures – will have a significant impact on multinational taxpayers in 2018, irrespective of whether they have US or non-US operations.

Sanger says: “The US tax reform package contains a whole spectrum of burden-decreasing measures. In response, it is probable that investor and corporate taxpayer behaviors will change in a number of ways, which in time could drive other governments – in particular the US’s closest neighbors and largest trading partners – to form corresponding tax policy measures.”

The report also highlights the breadth of change in relation to digital taxation, encompasses direct tax changes (Greece, Italy, and United Kingdom), indirect tax changes (Argentina, Singapore and Turkey), and redefinitions of permanent establishment (in Italy and India). Indeed, 15 of the 41 jurisdictions (37%) are already forecasting higher tax burdens as a result of digitally focused changes in 2018.

Philippos Raptopoulos, EY Cyprus Head of Tax Services, says:

“With a greater focus on reporting requirements than ever before, governments are causing business leaders at multinational organizations to reassess their approach to tax and how they conduct business. Executives must ask critical questions to stay ahead of the regulator changes and become more transparent.”