Ten Reasons to Defend the Corporation Tax [pdf]

I think an open discussion of tax policy is important and thankfully organisations like the OECD are working to create frameworks for countries to use to make good policy choices. (especially in the international context) I recommend looking into their papers if you're interested.

That said I found the arguments in this document missing some important points.

They don't clearly separate the benefits of corporate taxes from a domestic vs international standpoint. These are two very different issues. On the international side they talk about the race to the bottom where counties are attracting companies through lower tax rates. They suggest this is a negative trend but don't offer solutions - because it's a complex issue with no easy fix. Sovereign countries can chose their tax regime and therefore there is an incentive for some to become tax havens. As an individual country it will hurt you to raise the corporate tax rate since there is a higher incentive for companies to move profits. So are they suggesting all counties agree to raise their corporate tax rates? It's not clear. Countries are obviously aware of this issue and are working with the OECD to draft solutions.

On the domestic side they gloss over the fact that most countries work to have an integrated tax system. That is, no matter how you structure you taxes when income flows to an individual the total tax paid on that income should be the same. So having a corporation (which usually has a lower tax rate than individuals) gives you a deferral of tax. This is to encourage businesses to reinvest.

They claim that if there is no corporate tax then companies will create shell companies and put income there. Tax authorities aren't stupid. Even now it would be beneficial to do that since corporate rates are lower than personal rates. Thats why if the company isn't earning business income (I.e. you just throw your personal wealth there invested in passive income) the tax rate of the corporation is bumped up to the highest personal rate on that income. So doing what the document suggests would be illegal.

The only real argument for changing the corporate tax rate should be (from a domestic standpoint) based on the deferral. That is, do you think companies should pay less tax to help grow their business faster and only pay tax when the owner stops reinvesting in the business?

Obviously this is a complex topic and I think that this document glosses over alot of that complexity. Just to note that I'm most familiar with the Canadian tax system so that's what I've based the domestic discussion on. However, all countries have similar tax policy objectives and should have similar rules in place.