August 11, 2021
OECD releases corporate tax statistics publication (third edition), including anonymized and aggregated country-by-country report statistics
On 29 July 2021, the Organisation for Economic Co-operation and Development (OECD) released the third edition of its annual Corporate Tax Statistics publication (the report) together with an updated database. The OECD describes the database as intended to assist in the study of corporate tax policy and expand the quality and range of data available for the analysis of base erosion and profit shifting (BEPS) activity. The database includes anonymized and aggregated country-by-country (CbC) reporting statistics, reflecting information for the year 2017 and including information from CbC reports filed in 38 jurisdictions. The OECD also published a list of Frequently Asked Questions on the anonymized and aggregated CbC reporting data.
As highlighted in the press release accompanying the release of the report and the database, the OECD views the new data as showing the importance of the two-pillar plan being advanced by member jurisdictions of the OECD/G20 Inclusive Framework on BEPS in connection with the so-called BEPS 2.0 project "to reform international taxation rules and ensure that multinational enterprises pay a fair share of tax wherever they operate."
In October 2015, the OECD released the final reports on all 15 Action areas in its BEPS project.1 The recommendations made in the reports ranged from new minimum standards to reinforced international standards, common approaches to facilitate the convergence of national practices, and guidance drawing on best practices. The BEPS Action 11 report, titled Measuring and Monitoring BEPS, is intended to estimate the scale of BEPS activity, identify indicators of BEPS, and provide recommendations for improving the measurement of BEPS.
On 15 January 2019, the OECD released the first edition of the Corporate Tax Statistics publication, which provided internationally comparable statistics and analysis covering approximately 100 countries on four main categories of data: (i) corporate tax revenues; (ii) statutory corporate income tax rates; (iii) corporate effective tax rates; and (iv) tax incentives related to innovation.
The second edition of the database, released on 8 July 2020, included the first release of anonymized and aggregated data collected through CbC reports filed for 2016.
Corporate Tax Statistics: Third Edition
The third edition of the publication and database compile new data items and statistics in various existing data sets held by the OECD. The new database contains the following categories of data:
According to the OECD, evidence of continuing BEPS behaviors and a persistent downward trend in statutory corporate income tax rates reinforce the need to finalize agreement on the BEPS 2.0 project and begin implementation of the new Pillar One and Pillar Two rules.
Corporate tax revenues
The report notes the importance of corporate tax as a source of government revenues and also points to evidence of continuing BEPS behaviors.
The data released shows that corporate income tax is a significant source of tax revenues for governments to fund essential public services, especially in developing and emerging market economies. On average, corporate income tax accounts for a higher share of total taxes in Africa (19.2%) and in Latin America and the Caribbean (15.6%) than in OECD countries (10%).
Statutory corporate income tax rates
The report points to data showing that statutory corporate income tax rates have been decreasing in most countries over the last two decades. Across 111 jurisdictions, 94 had lower corporate income tax rates in 2021 compared with 2000, while 13 jurisdictions had the same tax rate, and only 4 had higher tax rates.
The average combined (central and sub-central government) statutory corporate income tax rate for all covered jurisdictions declined from 20.2% in 2020 to 20.0% in 2021, compared to 28.3% in 2000. According to the OECD, these declining rates highlight the importance of the global minimum tax rules developed under Pillar Two, which will put a multilaterally agreed limit on corporate tax competition.
Corporate effective tax rates
The Corporate Tax Statistics database contains four forward-looking tax policy indicators reflecting tax rules as of 1 July for the years 2017-20: (i) the effective marginal tax rate (EMTR); (ii) the effective average tax rate (EATR); (iii) the cost of capital; and (iv) the net present value of capital allowances as a share of the initial investment.
The report notes that the average EATR across jurisdictions (20.4%) is 1.1 percentage points lower than the average statutory tax rate (21.5%).
Tax incentives for research and development (R&D)
The report states that R&D tax incentives are increasingly used to promote business R&D with 33 out of the 37 OECD jurisdictions offering tax relief with respect to R&D expenditures in 2020, compared to 20 in 2000. The OECD indicates that most jurisdictions use a combination of direct support and tax relief to support business R&D, but the policy mix varies. According to the OECD, over time there has been a shift toward greater use of R&D tax incentives to deliver financial support for business R&D.
This year's database includes new indicators on the use of tax incentives for R&D investments. The OECD describes the indicators, which are accompanied by a new working paper, as showing that in 2020, among OECD countries offering tax support, R&D tax incentives decrease the effective tax rate on R&D investments by about 10 percentage points on average, compared to non-R&D investments.
Action 13 implementation and anonymized and aggregated statistics collected via country-by-country reports
The publication indicates that CbC reporting requirements are a major output of the original BEPS project, providing tax authorities with information that can be used to analyze multinational enterprise (MNE) behavior for risk assessment purposes. The new CbC reporting data provide aggregated information on the global tax and economic activities of around 6000 MNE groups headquartered in 38 jurisdictions and operating across more than 100 jurisdictions worldwide. The publication further states that the release of updated anonymized and aggregated statistics will continue to support the improved measurement and monitoring of BEPS.
The publication recognizes that the CbC reporting data contain some limitations2 and that comparability between the 2016 and 2017 data is limited. Nonetheless, the OECD expresses the view that the new statistics suggest continuing misalignment between the location where profits are reported and the location where economic activities occur. According to the OECD, this can be seen through differences in profitability, related-party revenues, and business activities of MNEs in investment hubs and zero-tax jurisdictions compared to MNEs in other jurisdictions. While the OECD acknowledges that these effects could reflect some commercial considerations, the OECD sees the statistics as indicating the existence of BEPS.
Intellectual property regimes
The database also includes information on intellectual property (IP) regimes. Many jurisdictions have implemented IP regimes that allow income from the exploitation of certain IP assets to be taxed at a lower rate than the standard statutory corporate income tax rate. The information included in the database provides a basic description of the IP regimes in place in 2020. Changes to IP regimes that were legislated in 2020 but are not effective until 2021 are not reflected in this edition of the database. Future editions will incorporate the effects of IP regimes into the corporate effective tax rate analysis.
The information for each IP regime included in the database is: (i) the name of the regime; (ii) the qualifying IP assets; (iii) the reduced tax rate that applies under the IP regime; and (iv) the status of the IP regime as determined by the OECD's Forum on Harmful Tax Practices.
The release of aggregated CbC reporting data provides a new source of information for analyzing MNE activities. However, the data contain some significant limitations that need to be taken into account in assessing the information. The database will continue to be updated annually.
It is important to note that the OECD views this data as suggesting some insights that could have an impact on the finalization of the agreement in the BEPS 2.0 project.
Businesses may want to review the report and the database and consider the implications of the OECD's interpretations of the data included in the database.
For additional information with respect to this Alert, please contact the following:
Ernst & Young Belastingadviseurs LLP, Rotterdam
Ernst & Young Belastingadviseurs LLP, Amsterdam
Ernst & Young LLP (United States), Global Tax Desk Network, New York
Ernst & Young LLP (United States), Washington, DC