Corporate Taxes: The Chief Business Of The Conquerors

"Taxes are the chief business of a conqueror of the world," says Caesar in George Bernard Shaw's play "Caesar and Cleopatra." And so they are. Look at IKEA and Google, whose taxes we will discuss in a moment.

Washington is debating the 35% statutory corporate tax rate. The average statutory corporate tax rate among OECD nations hovers around 27%.

But neither the 35% nor the 27% number should be considered certain, because the effective rate companies will pay depends on how taxation in the rest of the world evolves.

Three well-known, global, brand-name companies pay roughly a tenth of the statutory rate. Their legal structure demonstrates that Washington's decisions on corporate taxes must start by evaluating the present complex tax and regulatory codes around the world. They cannot be changed easily; in Europe's case, for example, they were part of the decade-long agreements reached before setting up the European community.

Navigating these codes allows successful companies to pay only 3% to 5%. Achieving these low rates is costly, however. If the tax codes were simplified and set at, say, 10%, declared profits would likely be much higher. Governments would not lose revenue and other benefits would emerge...

- Professor Reuven Brenner

Read full article: Forbes, January 20, 2011