Introduction

Governments use their tax systems in various ways to incentivise and disincentivise certain types of behaviour, reward or penalise particular individuals or groups, as part of broader macro-economic policy and to fund social and public policies. Taxation is not simply about raising revenues; it can also be about distributing favours and picking winners. Decisions on taxation rates, incidence and exemptions are taken in the round, alongside spending decisions and after taking into account benefits such as grants, subsidies and state services. What has become increasingly clear is that many of the rewards of the tax system over the past few decades have been distributed disproportionately to big business, coinciding with increases in other types of corporate welfare (government policies that are designed to meet the needs and/or demands of private businesses, Farnsworth, 2012).

Despite its importance, corporation tax is rarely examined as a social policy issue. It tends to be viewed in legalistic and accountancy terms. Yet, questions of where, when and how corporations pay tax are important if we are to address broader questions of economic inequality. Various tax benefits are also important – distributing resources to recipients through the tax system. Tax decisions also influence prevailing business and investment models, which, in turn, have huge implications for the direction and redistribution of public resources and the positive or negative impact of business activities on employees, communities and consumers. This chapter focuses on the issue of corporate taxation, but it also looks at how tax shares and tax benefits are distributed unevenly, not just between citizens and corporations but also between different types of business. It examines how governments have used the tax system to incentivise predatory corporate behaviour and it looks at the implications of the corporate tax environment on the future shape of the welfare state.

Corporate taxes are complex and contested

Compared with other taxes, those levied on businesses tend to be more complex, more contested and more unique. To begin with, corporate taxes have not been around as long as land, expenditure and other income taxes.