International Corporate Tax Rates

In a recent annual report, Warren Buffett complained about the disproportionately high share of corporate income taxes that Berkshire Hathaway (BRK) was paying. And paying close attention to what he says, I spent some time looking at the issues involved.

I found that most companies of BRK's size are more internationally diversified. As a result, a wide range of tax planning (or manipulating) is legitimately available. Countries are competing for high quality jobs to be put into their jurisdictions. As a result, the U.S. is now in a group with the highest statutory tax rate at 35%. The others are India, Malta and Spain. The lowest tax rate country is Ireland at 12.5%.

Looking at the likelihood of tax structures is important. A recent study demonstrated that "the effect of a single percentage point reduction in tax rate was the equivalent of the company generating a 15% increase in its sales over a 10 year period." With sales growth generally slow, this shows tax planning has a huge impact. Is there downside to this?

Of course. But after looking around Europe and "the world is flat" thesis, I really think most countries are going to competitively lower corporate tax rates to attract the best working populations and employment opportunities. Technology and pharmaceutical companies should continue to benefit as research employees probably represent highly desirable citizens (high incomes and education levels).