Concerns about corporate tax avoidance have become salient. Crux of Capitalism data reveals a clear positive relationship between a company’s economic profitability and its net tax payments. While the percentage of firms with negative cash effective tax rates exhibit cyclical variation, there is an overarching upward trend. In the United States, the share of firms with negative cash ETR rose by 14 percentage points from 2005 to 2022. In China, 13% of listed firms received net tax refunds in 2022.
A recent study led by Simon Evenett has crunched the numbers for publicly-listed firms in China, Germany, Japan, and USA and:
(1) Verified that the average effective tax rate for listed firms in all four countries has fallen since 2005;
(2) Confirmed that the more profitable a firm is, the higher absolute tax contributions it pays to governments;
(3) Found that the share of firms “paying” negative taxes is cyclical–that is, closely linked to GDP growth in each nation;
(4) Revealed that the USA has the most firms “paying” negative taxes, followed by JPN, then China (see chart)
(5) Corporate tax refunds play a growing and significant role in China, less so elsewhere (see chart).
Read the full report.