October 31, 2017
The changing headquarters landscape for Fortune Global 500 companies
The location of headquarters for the Fortune Global 500 (FG500) shifted significantly over the 2000 through 2017 period. FG500 companies headquartered in the G7,1 declined from 420 in 2000 to 283 in 2017. A significant driver of the change in headquarters locations for the FG500 is the growing presence of China. Between 2000 and 2017, the number of FG500 companies with their headquarters in China grew from 10 to 109. During that same period, China reduced its top statutory corporate income tax rate from 33% to 25%. Of course, many factors can affect the choice of a company's headquarters location, including regional economic growth and stability, local infrastructure, a country's regulatory environment, the availability and productivity of the labor force, transportation and other input costs, and a country's tax policies.
Table 1 summarizes the headquarters locations for the FG500 by country and illustrates how headquarters locations — and top statutory corporate income tax rates — have shifted in recent years.
Noteworthy trends include:
1. The number of FG500 companies headquartered in the United States declined from 179 (36% of FG500 companies) in 2000 to 132 (26% of FG500 companies) in 2017 amid a global trend toward reducing statutory corporate income tax rates.
2. Japan — still home to the third-highest number of FG500 companies despite years of slow economic growth — reduced its top statutory corporate income tax rate from 43.3% in 2000 to 30.0% by 2017.
3. The average statutory corporate income tax rate imposed on non-US-headquartered FG500 companies declined from 39.2% in 2000 to 26.3% in 2017. In contrast, the US statutory corporate income tax rate, including both the federal and a weighted average state corporate income tax rate, has remained essentially unchanged during the period.
4. Significant reductions in top statutory corporate income tax rates occurred in a number of large economies during the period. The top statutory corporate income tax rate was reduced by at least 10 percentage points in Canada, Germany, Japan, the Netherlands, and the United Kingdom. Additionally, the number of the largest 10 countries with a dividend exemption of at least 95% increased from 4 (40%) in 2000 to 7 (70%) in 2017.
(T) denotes that a top 10 country generally has a dividend exemption of at least 95%.
Note: The top 10 countries are sorted by total number of headquarters in 2017. "Corporate income tax rate" represents the top statutory corporate income tax rate and includes both national and subnational corporate income taxes. Tax rates for the Total Top 10, Other, and Total Global 500 groupings are all averages weighted by the number of FG500 companies headquartered in each country. The United States is excluded from each of these calculations to facilitate comparison of each grouping to the United States. Figures may not sum due to rounding.
Source: Fortune Global 500; EY Worldwide Corporate Tax Guide; Organization for Economic Co-operation and Development (OECD); EY analysis
As seen in Figure 1, a significant driver of the change in headquarters locations for the FG500 is the growing presence of China. Between 2000 and 2017, the number of FG500 companies — the company composition of which changes over time — with their headquarters in China grew from 10 to 109.
FG500 companies with headquarters outside of the G7 other than China grew from 70 in 2000 to 108 in 2017. Similarly, FG500 companies with headquarters outside of the OECD2 other than China grew from 10 in 2000 to 33 in 2017. A notable share of the decline in company headquarter locations for the G7 and OECD between 2000 and 2017 is attributable to the declines in the United States (47 company decline) and Japan (56 company decline). The declines in the US and Japan accounted for 103 of the 137 company decline in the G7.
Note: Each bar sums to 500. Other G7 is the G7 excluding the United States. Other non-G7 is non-G7 countries excluding China. Other OECD is the OECD excluding the United States. Other non-OECD is non-OECD countries excluding China.
Source: Fortune Global 500; EY analysis
Industry makeup of Fortune Global 500 companies
Figure 2 shows the industry distribution of FG500 companies between 2000 and 2017. Twenty-four percent of FG500 companies in 2017 were in the financial and professional services industry, which includes banks and insurers. This is down from 27% in 2000. The share of FG500 companies also declined in the following industries: retail and consumer products (2 percentage points), energy, utilities and chemicals (1 percentage point), and industrial products (2 percentage points). Increases were seen for the share of companies in the wholesale/trade (7 percentage points), natural resources (4 percentage points), and technology, communications and entertainment (2 percentage points) industries.
Note: Bars sum to 100% for 2000 and 2017. Figures may not appear to sum due to rounding.
Source: Fortune Global 500; EY analysis
State-owned enterprises comprise one-fifth of the FG500
As shown in Figure 3, 102 of the FG500 companies are state-owned enterprises (SOEs). This is significantly above the 27 SOEs seen in 2000, but below the recent peak of 117 in 2014. China accounts for a significant portion of these SOEs. In particular, Chinese SOEs account for 75 of the 102 SOEs in 2017, above the 9 of 27 SOEs in 2000, but slightly below the 77 of 117 SOEs in 2014. Outside of China, SOEs in the FG500 are split between OECD (13 SOEs) and non-OECD (14 SOEs) countries. In 2017, SOEs accounted for $6.1 trillion of the $27.7 trillion of total revenue of FG500 companies.
Source: FG500; EY analysis.
Both tax and non-tax factors play a role in companies' headquarters location decisions. The location of companies' headquarters has been a focal point in part due to the potential benefits their location may provide to a host country. The emergence and growth of SOEs, however, is also an important consideration. Companies, industry groups, and policymakers need to be aware of the trends related to companies' choice of headquarters locations. As the United States considers reform of its corporate income tax with an objective of improving its competitiveness in the global economy, companies should monitor tax reform developments and consider how changes in US tax policy may potentially affect their decisions.
1 The G7 countries consist of Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States.
2 The OECD consists of Australia, Austria, Belgium, Canada, Chile, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Israel, Italy, Japan, South Korea, Latvia, Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Poland, Portugal, the Slovak Republic, Slovenia, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States.