<\/p>\n
The International Monetary Fund\u2019s (IMF) latest World Economic Outlook found that reported profits had become less responsive to differences in corporate tax rates, while real investment had become more sensitive.<\/p>\n
<\/p>\n
The shift suggests multinational companies are increasingly reporting profits where economic activity and investment take place.<\/p>\n
<\/p>\n
Highly mobile intangible assets, including software, patents, data and trademarks, have historically allowed multinational companies to separate reported profits from business operations and move earnings to lower-tax jurisdictions.<\/p>\n
<\/p>\n
Governments have responded by reducing corporate tax rates and offering incentives to attract investment and reported profits.<\/p>\n
<\/p>\n
However, stronger international measures targeting tax avoidance, base erosion and profit shifting appear to be changing that behaviour.<\/p>\n
<\/p>\n
The IMF found that a one-percentage-point reduction in corporate tax rates in other countries was associated with an average domestic reduction of 0.4 percentage points.<\/p>\n
<\/p>\n
Competition was strongest among countries at similar stages of economic development, although competition over headline rates had moderated since the mid-2010s.<\/p>\n
<\/p>\n
The IMF warned that corporate tax decisions could have significant effects beyond national borders.<\/p>\n
<\/p>\n
A one-percentage-point increase in a country\u2019s corporate tax rate relative to other countries was associated with a cumulative decline in foreign direct investment equivalent to about 0.5% of gross domestic product over three years.<\/p>\n
<\/p>\n
Corporate tax cuts in major economies could also reduce economic output elsewhere because losses caused by capital moving between countries could exceed benefits from increased demand for imports.<\/p>\n
<\/p>\n
Governments borrowing to finance tax cuts risk pushing up real interest rates and weakening investment growth across economies.<\/p>\n
<\/p>\n
If competing countries respond with equivalent tax reductions, the initial country\u2019s gains could also diminish.<\/p>\n
<\/p>\n
Long-term effects depend on how governments offset lost revenue. Lower public spending or higher taxes elsewhere could weaken investment in infrastructure, education, healthcare and other services supporting economic growth.<\/p>\n
<\/p>\n
The IMF said emerging-market and developing economies could benefit substantially from stricter anti-avoidance rules because corporate income tax remained an important source of public revenue.<\/p>\n
<\/p>\n
Those measures could preserve funds for development while limiting artificial profit shifting.<\/p>\n
<\/p>\n
As technology makes capital increasingly mobile, the IMF expects corporate tax systems to place more emphasis on attracting productive investment, innovation and economic activity rather than profits reported for tax purposes.<\/p>\n
<\/p>\n
–IMF\/ChannelAfrica–<\/p>\n","protected":false},"featured_media":44013,"template":"","meta":{"_acf_changed":false,"_links_to":"","_links_to_target":""},"news-type":[44],"class_list":["post-47285","news","type-news","status-publish","has-post-thumbnail","hentry","news-type-finance","entry"],"acf":{"short_description":"Global tax competition is increasingly focused on attracting real investment rather than reported profits as stronger anti-avoidance rules limit multinational companies\u2019 ability to shift earnings.","published_date":"","news_description":"Global tax competition is increasingly focused on attracting real investment rather than reported profits as stronger anti-avoidance rules limit multinational companies\u2019 ability to shift earnings.","form_embed":"","author":"","image_caption":""},"_links":{"self":[{"href":"https:\/\/www.channelafrica.co.za\/channelafrica\/wp-json\/wp\/v2\/news\/47285","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.channelafrica.co.za\/channelafrica\/wp-json\/wp\/v2\/news"}],"about":[{"href":"https:\/\/www.channelafrica.co.za\/channelafrica\/wp-json\/wp\/v2\/types\/news"}],"version-history":[{"count":1,"href":"https:\/\/www.channelafrica.co.za\/channelafrica\/wp-json\/wp\/v2\/news\/47285\/revisions"}],"predecessor-version":[{"id":47286,"href":"https:\/\/www.channelafrica.co.za\/channelafrica\/wp-json\/wp\/v2\/news\/47285\/revisions\/47286"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.channelafrica.co.za\/channelafrica\/wp-json\/wp\/v2\/media\/44013"}],"wp:attachment":[{"href":"https:\/\/www.channelafrica.co.za\/channelafrica\/wp-json\/wp\/v2\/media?parent=47285"}],"wp:term":[{"taxonomy":"news-type","embeddable":true,"href":"https:\/\/www.channelafrica.co.za\/channelafrica\/wp-json\/wp\/v2\/news-type?post=47285"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}