The GOP tax bill that was signed into law by the white house late last year, significantly reduced corporate taxes which has piled pressure on other significant economies around the world to adjust so as not to lose investors to the United States. Just hours after President Trump signed the tax reform bill into law which reduced corporate tax from 35% to 21%, the Chinese government announced that it would give tax breaks and exceptions to both foreign and local investors who already had businesses in China.
The move by the Chinese government showed how determined it was to gain a competitive edge in the global market at a time when one of its most fierce commerce competitors signed into law the most comprehensive tax reform since the Reagan administration three decades ago. Both the developing and developed nations are lowering their corporate taxes in the hope that they will gain a competitive advantage long-term in a global market economy that is rarely predictable. Countries also want to prevent corporations from shifting the profits they have generated across borders artificially which is set to minimize the overall exposure of the profits generated within their jurisdiction.
The world-renowned practice is referred to as profit shifting, and base erosion which sees companies and business enterprises favor to have their operations in jurisdictions that offer tax havens and low taxes. The head of tax at KPMG in Singapore has said that these efforts by the US and China may force other countries that want to retain their competitiveness in the global economy to have their taxes reviewed to encourage both local and international businesspeople to invest in their jurisdictions. However, the two most significant economies regarding nominal Gross Domestic Product and Purchasing power parity are not alone in the race to woo more investors and retain the ones that they already have.
Countries like Argentina, Norway, France and the United Kingdom had made corporate tax cuts or have plans to except taxes for people who are doing business in their countries long before the United States passed its latest tax reform legislation. Chester Wee, who is a services leader for international taxes and a partner at Ernest & Young said that nations are on a race to win more jobs and investments which are the key drivers of economic development. Wee said that a more attractive treaty network and tax regime, assuming all other factors are kept constant, is likely to influence the moving of the investments of a certain company from one nation to another.