Corporate Income Tax
Corporate income tax (also called corporate tax or company tax) is a tax levied on the profits of corporations. It is a direct tax on business income and is a significant source of revenue in many countries, as well as a key consideration in international tax competition and investment decisions.[1]
Definition
Corporate income tax is levied on a company's taxable profits, calculated as revenue minus allowable expenses, deductions, and depreciation. The base of the tax is typically narrower than accounting profit because of tax-specific allowances and deductions. Most countries apply a single statutory rate to corporate profits.[1]
Economic effects
Corporate income tax affects business behaviour in several ways:
- Investment — by reducing after-tax returns, it may discourage investment, though the effect depends on the ability to deduct capital costs.
- Financing — because interest is often deductible while dividends are not, corporate tax may favour debt over equity financing, creating a "debt bias".
- Location — differences in corporate tax rates influence where multinational firms locate production and report profits, contributing to tax competition and profit shifting.
- Incidence — the economic burden of corporate tax may be shared between shareholders, workers, and consumers.
International aspects
Because corporations operate across borders, corporate income tax raises complex issues of international taxation, including the taxation of multinational profits, transfer pricing, and efforts to prevent base erosion and profit shifting (BEPS). International coordination is pursued through frameworks such as the OECD's inclusive framework and minimum tax agreements.[1]