Beyond corporate income taxes: Imagining the world after COVID-19

Andrew Packman Global Pharmaceutical and Life Sciences Tax Leader, PwC United Kingdom

It comes as no surprise that governments around the world are introducing financial support measures in response to the COVID-19 pandemic. What this means for both governments and businesses in the longer term will need to be addressed when the public health emergency has passed. The large increases in borrowing to fund these measures will have an effect on inflation rates and taxes, but it is too early to say what these will be. We do know, however, that big businesses will be impacted and their tax contributions may be closely scrutinised.

In light of this, it is important to understand the full range of taxes businesses pay, including income and employment taxes. A recent study showed that the largest companies headquartered in the EU and EFTA contributed €198.2bn ($227.7bn) in taxes, representing €376 ($444) for every person living in the EU/EFTA. The study, conducted by PwC for the European Business Tax Forum (EBTF) showed that 41 of the largest companies headquartered in the EU and EFTA provided jobs for more 1.6m people, corresponding to 0.7% of the EU/EFTA workforce. And for every employee, an amount of €27,420 ($32,383) was paid in employment taxes.

Governments are the largest beneficiary, via taxes, of the value distributed by the companies that took the survey, representing almost half of the total. Employees received 21.0% in wages and shareholders 29.5% in dividends or retained in the business for reinvestment.

How will these norms change in a post-pandemic world? How will the pandemic, the ensuing economic downturn, and other global challenges, such as climate change, shape the tax policy in Europe and around the world?

Let’s talk about corporate income taxes

Corporate income tax, at 45%, comprises the largest portion of total taxes borne by a company - that is, those taxes which are a direct cost to the company. But businesses pay far more than just corporate income tax. Indeed, for every €1 paid in corporate income tax, €1.41 are paid in other taxes borne and €6.72 in taxes collected.

The EBTF study that details this information is the first edition and it will be repeated in 2020. We hope that, as more companies join this initiative, the report will be widely used to show the contribution that large businesses make in taxes and how the profile of taxes changes year-on-year. The study will track the actions governments take in response to the necessary measures put forward to tackle the pandemic crisis, which will be felt long after the immediate public health emergency has passed and will have implications for tax policy.

The full report is available for download at EBTF’s page (PDF). If you would like to talk to us about the methodology or findings, please contact Andrew Packman.

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