Understand

Taxation · Business · Social Justice

The Corporate Income Tax

We're told corporate tax hits companies — meaning the rich. The reality: it first hits workers (wages squeezed when profits are taxed) and small businesses (who can't optimise it away). Large groups have already brought their bill down to almost nothing.

50–70% of corporate tax ultimately borne by workers — not shareholders (Arulampalam et al., 2012)
16% vs 25% effective rate: large groups vs official rate — corporate tax is fairer on paper than in practice (DGFiP, 2021)
9% corporate tax rate in Hungary — in the same single market as France at 25%
01

It's not "companies" who pay — it's you

When the state taxes a company's profits, who really pays? Not "the company" — a company isn't a person. Behind it are real people: shareholders who receive dividends, employees who earn wages, customers who buy products. When profits are taxed, someone in that chain absorbs the burden. The question is: who?

We usually imagine it's shareholders — after all, it's their profit being taxed. But in an economy where capital can be invested in Ireland or Hungary, companies under tax pressure moderate wages to maintain their profitability. Multiple studies estimate that for every extra €1 of corporate tax, wages fall by €0.30 to €0.50 in affected companies. This isn't theory — it's measured on tens of thousands of real European companies.

"For every extra €1 of corporate tax, wages fall by €0.49." Arulampalam, Devereux, Maffini — 54,000 European companies, 2012

Toggle between the three cases to see how the burden is distributed depending on whether capital can leave.

The key takeaway The more freely capital can move between countries, the more it escapes corporate tax — and the more the burden falls on workers and consumers, who can't relocate. This is why corporate tax is less fair than it appears: it targets shareholders, but in practice, it's often your wages that pay.
02

Raising corporate tax raises less than you'd think

It seems logical that doubling the corporate tax rate would double revenue. That's not what happens. When corporate tax rises, companies react: they invest less, or declare fewer profits in France by restructuring their accounting differently. The pool of profits you can tax shrinks as the rate rises.

France reduced its corporate tax rate from 33% to 25% between 2017 and 2022. Paradoxical but predictable result: corporate tax revenues increased. Companies had less reason to shift their profits — they declared more. That's the basic principle: a reasonable rate on a large base raises more than a high rate on a base full of holes.

"Rate cut from 33% to 25%. Corporate tax revenues: up. Go figure." France, 2017–2022 — DGFiP

The curve shows theoretical revenues by corporate tax rate. The rate that raises the most is around 29% — beyond that, revenues fall even as the rate rises.

The key takeaway France moved from 33% to 25% between 2017 and 2022 — a direction consistent with what the curve predicts. Beyond 30%, each additional rate point raises less than the previous one, as companies adjust their behaviour. The optimal rate is neither as low as possible — nor as high as possible.
03

Are low-corporate-tax countries poorer?

Ireland has had a 12.5% corporate tax rate since the late 1990s (generalised as a single rate in 2003). The result expected by high-tax advocates: a poor state, degraded public services. The actual result: Ireland's GDP per capita more than quadrupled. Ireland is now among Europe's richest countries, its public services well funded — thanks to a more dynamic economy and a broader tax base.

Hungary (9%), Bulgaria (10%), the Baltic states (20%) have far lower corporate tax rates than France in the same European market. They haven't collapsed. Tax competition between states is neither a disaster nor a panacea — it's a reality that forces every government to justify the cost of its tax system. That's not necessarily a bad thing.

"Ireland: 12.5% corporate tax. GDP per head: ×4 in 30 years." vs France: IS between 25 and 33% over the same period — OECD

Click a country to see details. France is highlighted.

The key takeaway The spread of corporate tax rates in Europe (9% to 30%) shows that comparable countries have made radically different choices — and that low-rate countries aren't the poorest. The global 15% minimum tries to set a floor, but remains well below the French rate.
04

A small business pays the full rate. A large group: much less.

The official French corporate tax rate is 25%. That's what you'd pay if you ran a bakery, a medical practice, or a carpentry workshop. But large groups have access to structures small businesses don't: subsidiaries in lower-tax countries, loss-transfer mechanisms between group companies, cascading tax credits. Result: CAC40 companies pay on average 16% effective corporate tax.

That's the paradox of a high corporate tax rate: the higher the rate, the more worthwhile it is for large groups to invest in tax planning — and the wider the gap with SMEs that can't afford to. A high rate full of exceptions benefits the big, not the small. A low, simple rate would narrow this gap — but it's of less interest to large-company lobbyists who have mastered the current exceptions.

"SME: 24% corporate tax. CAC40: 16%. Officially, it's the same rate." DGFiP 2021 — actual effective rate by company size

Comparison between the official rate (25%) and the rate actually paid by company size.

Official rate (25%)
Rate actually paid
The key takeaway A uniform nominal rate of 25% creates a real inequality: large groups can legally halve it, while the SME pays almost the full amount. This is another reason to lower the rate and remove exceptions — rather than maintaining a high rate riddled with holes.
05

The objections — reversed

Four arguments you hear every time someone proposes reforming corporate tax. Click to see what each one actually reveals.

Click a card to flip the argument.

01 💰

"Corporate tax — it's the rich who pay"

Flip →
01

In theory, yes. In practice, in an open economy, capital can flee to lower-tax countries — forcing companies to compress wages to maintain profitability. A study of 54,000 European companies showed that for every extra €1 of corporate tax, wages fall by €0.49. Workers absorb most of the burden. Shareholders can move their investments. Workers can't.

02 🏢

"Cutting corporate tax is a gift to multinationals"

Flip →
02

Multinationals have already reduced their corporate tax to almost nothing through their structures. It's the local bakery that pays 24% — not the tech giant based in Dublin. Cutting the rate and removing exceptions will benefit small businesses first — those who can't afford tax lawyers — not the large groups who already master the current rules.

03 ⚖️

"We need to tax profits more for greater fairness"

Flip →
03

Corporate tax in its current form worsens inequalities between large and small companies. If the goal is tax fairness, it's better to directly tax shareholder dividends and capital gains through income tax — those revenues are harder to move across Europe. A shareholder receiving dividends can be taxed where they live. A profit can be declared in Dublin.

04 🌐

"The global 15% deal has solved the problem"

Flip →
04

The Pillar 2 agreement (OECD 2021) is a real step forward — but a limited one. First, 15% remains well below France's 25% rate. Second, countries that want to attract businesses have other tools: favourable tax rulings, disguised subsidies, special regimes for patents. Third, the agreement mainly covers very large multinationals — not SMEs that still face unfair competition from the favourable tax regimes of certain EU member states.

Corporate tax is poorly designed. There are better ways to tax the rich.

Corporate tax targets shareholders but hits workers and SMEs. Large groups have legally reduced it to almost nothing. If the goal is tax fairness, directly taxing dividends and capital gains would be far more effective — and far harder to relocate across Europe. In the meantime, France's 25% rate is reasonable. But "reasonable" isn't "optimal" — and the real debate should be about the structure, not the number.