Corporate tax

A corporate tax, also called corporation tax or company tax or corporate income tax, is a type of direct tax levied on the income or capital of corporations and other similar legal entities. The tax is usually imposed at the national level, but it may also be imposed at state or local levels in some countries. Corporate taxes may be referred to as income tax or capital tax, depending on the nature of the tax.
The purpose of corporate tax is to generate revenue for the government by taxing the profits earned by corporations. The tax rate varies from country to country and is usually calculated as a percentage of the corporation's net income or capital. Corporate tax rates may also differ for domestic and foreign corporations.
Some countries have tax laws that require corporations to pay taxes on their worldwide income, regardless of where the income is earned. However, most countries have territorial tax systems, which only require corporations to pay taxes on income earned within the country's borders.
A country's corporate tax may apply to:

corporations incorporated in the country,
corporations doing business in the country on income from that country,
foreign corporations who have a permanent establishment in the country, or
corporations deemed to be resident for tax purposes in the country.

Company income subject to tax is often determined much like taxable income for individual taxpayers. Generally, the tax is imposed on net profits. In some jurisdictions, rules for taxing companies may differ significantly from rules for taxing individuals. Certain corporate acts or types of entities may be exempt from tax.
The incidence of corporate taxation is a subject of significant debate among economists and policymakers. Evidence suggests that some portion of the corporate tax falls on owners of capital, workers, and shareholders, but the ultimate incidence of the tax is an unresolved question.

Economics

Economists disagree as to how much of the burden of the corporate tax falls on owners, workers, consumers, and landowners, and how the corporate tax affects economic growth and economic inequality. More of the burden probably falls on capital in large open economies such as the US. Some studies place the burden more on labor. According to one study: "Regression analysis shows that a one-percentage-point increase in the marginal state corporate tax rate reduces wages 0.14 to 0.36 percent." There have been other studies. According to the Adam Smith Institute, "Clausing, Gravelle and Auerbach, the three best reviews we found, basically conclude that most of the tax falls on capital, not labour."
A 2022 meta-analysis found that the impact of corporate taxes on economic growth was exaggerated and that it could not be ruled out that the impact of corporate taxation on economic growth was zero.
The Tax Justice Network and the Fair Tax Foundation argue that corporate income tax can be a major lever to reduce inequality, given that richer households ultimately bear more payments than poorer households.

Economic policy

Regardless of who bears the burden, corporation tax has been used as a tool of economic policy, with the main goal being economic stabilization. In times of economic downturn, lowering the corporate tax rates is meant to encourage investment, while in cases of an overheating economy adjusting the corporate tax is used to slow investment.
Another use of the corporate tax is to encourage investments in some specific industries. One such case could be the current tax benefits afforded to the oil and gas industry. A less recent example was the effort to restore heavy industries in the US by enacting the 1981 Accelerated Cost Recovery System, which offered favorable depreciation allowances that would in turn lower taxes and increase cash flow, thus encouraging investment during the recession.
The agriculture industry, for example, could profit from the reassessment of their farming equipment. Under this new system, automobiles and breeding swine obtained a three year depreciation value; storage facilities, most equipment and breeding cattle and sheep became five year property; and land improvements were fifteen year property. The depreciation defined by ACRS was thus sizeably larger than under the previous tax system.

Legal framework

A corporate tax is a tax imposed on the net profit of a corporation that is taxed at the entity level in a particular jurisdiction. Net profit for corporate tax is generally the financial statement net profit with modifications, and may be defined in great detail within each country's tax system. Such taxes may include income or other taxes. The tax systems of most countries impose an income tax at the entity level on the certain type of entities. The rate of tax varies by jurisdiction. The tax may have an alternative base, such as assets, payroll, or income computed in an alternative manner.
Most countries exempt certain types of corporate events or transactions from income tax. For example, events related to the formation or reorganization of the corporation, which are treated as capital costs. In addition, most systems provide specific rules for taxation of the entity and/or its members upon winding up or dissolution of the entity.
In systems where financing costs are allowed as reductions of the tax base, rules may apply that differentiate between classes of member-provided financing. In such systems, items characterized as interest may be deductible, perhaps subject to limitations, while items characterized as dividends are not. Some systems limit deductions based on simple formulas, such as a debt-to-equity ratio, while other systems have more complex rules.
Some systems provide a mechanism whereby groups of related corporations may obtain benefit from losses, credits, or other items of all members within the group. Mechanisms include combined or consolidated returns as well as group relief.
Many systems additionally tax shareholders of those entities on dividends or other distributions by the corporation. A few systems provide for partial integration of entity and member taxation. This may be accomplished by "imputation systems" or franking credits. In the past, mechanisms have existed for advance payment of member tax by corporations, with such payment offsetting entity level tax.
Many systems impose a tax on particular corporate attributes. Such non-income taxes may be based on capital stock issued or authorized, total equity, net capital, or other measures unique to corporations.
Corporations, like other entities, may be subject to withholding tax obligations upon making certain varieties of payments to others. These obligations are generally not the tax of the corporation, but the system may impose penalties on the corporation or its officers or employees for failing to withhold and pay over such taxes. A company has been defined as a juristic person having an independent and separate existence from its shareholders. Income of the company is computed and assessed separately in the hands of the company. In certain cases, distributions from the company to its shareholders as dividends are taxed as income to the shareholders.
Corporations' property tax, payroll tax, withholding tax, excise tax, customs duties, value added tax, and other common taxes, are generally not referred to as "corporate tax".

Definition of corporation

Characterization as a corporation for tax purposes is based on the form of organization, with the exception of United States Federal and most states income taxes, under which an entity may elect to be treated as a corporation and taxed at the entity level or taxed only at the member level. See Limited liability company, Partnership taxation, S corporation, Sole proprietorship.

Types

Most jurisdictions, including the United Kingdom and the United States, tax corporations on their income. The United States taxes most types of corporate income at 21%.
The United States taxes corporations under the same framework of tax law as individuals, with differences related to the inherent natures of corporations and individuals or unincorporated entities. For example, individuals are not formed, amalgamated, or acquired, and corporations do not incur medical expenses except by way of compensating individuals.
Most systems tax both domestic and foreign corporations. Often, domestic corporations are taxed on worldwide income while foreign corporations are taxed only on income from sources within the jurisdiction.

Taxable income

The United States defines taxable income for a corporation as all gross income, i.e. sales plus other income minus cost of goods sold and tax exempt income less allowable tax deductions, without the allowance of the standard deduction applicable to individuals.
The United States' system requires that differences in principles for recognizing income and deductions differing from financial accounting principles like the timing of income or deduction, tax exemption for certain income, and disallowance or limitation of certain tax deductions be disclosed in considerable detail for non-small corporations on Schedule M-3 to Form 1120.
The United States taxes resident corporations, i.e. those organized within the country, on their worldwide income, and nonresident, foreign corporations only on their income from sources within the country. Hong Kong taxes resident and nonresident corporations only on income from sources within the country.

Rates

Country	Tax/GDP	Country	Tax/GDP
Norway	12.5	Switzerland	3.3
Australia	5.9	Netherlands	3.2
Luxembourg	5.1	Slovakia	3.1
New Zealand	4.4	Sweden	3.0
Czech Republic	4.2	France	2.9
South Korea	4.2	Ireland	2.8
Japan	3.9	Spain	2.8
Italy	3.7	Poland	2.7
Portugal	3.6	Hungary	2.6
UK	3.6	Austria	2.5
Finland	3.5	Greece	2.5
Israel	3.5	Slovenia	2.5
OECD avg.	3.5	Germany	1.9
Denmark	3.4	Iceland	1.9
Belgium	3.3	Turkey	1.8
Canada	3.3	US	1.8

Corporate tax rates generally are the same for differing types of income, yet the US graduated its tax rate system where corporations with lower levels of income pay a lower rate of tax, with rates varying from 15% on the first $50,000 of income to 35% on incomes over $10,000,000, with phase-outs.
The corporate income tax rates differ between US states and range from 2.5% to 11.5%.
The Canadian system imposes tax at different rates for different types of corporations, allowing lower rates for some smaller corporations.
Tax rates vary by jurisdiction and some countries have sub-country level jurisdictions like provinces, cantons, prefectures, cities, or other that also impose corporate income tax like Canada, Germany, Japan, Switzerland, and the United States. Some jurisdictions impose tax at a different rate on an alternative tax base.
File:GDP per capita PPP vs CIT 2016.svg|thumb|General government revenue, in % of GDP, from corporate income taxes. For this data, the variance of GDP per capita with purchasing power parity is explained in 2 % by tax revenue. Years 2014–2017.
Examples of corporate tax rates for a few English-speaking jurisdictions include:

Australia: 28.5%, however some specialized entities are taxed at lower rates.
Canada: Federal 11%, or federal 15% plus provincial 1% to 16%. The rates are additive.
Hong Kong: 16.5%
Ireland: 12.5% on trading income, and 25% on non-trading income
New Zealand: 28%
Singapore: 17% from 2010, however a partial exemption scheme may apply to new companies.
United Kingdom: 19% for 2017–2022.
United States: Federal 21%. States: 0% to 10%, deductible in computing federal taxable income. Some cities: up to 9%, deductible in computing federal taxable income. The Federal Alternative Minimum Tax of 20% is imposed on regular taxable income with adjustments.