Corporate tax

Corporate tax is a tax imposed on corporations, usually calculated on taxable profits. Its rules determine which income, deductions, rates, and credits shape a corporation’s tax liability.

Taxable income: Income remaining after legally permitted deductions and adjustments, used to calculate tax liability. Corporate tax generally applies to this legally defined base, not directly to reported accounting profit.
Tax incidence: The distribution of a tax’s economic burden among people and organizations, regardless of who remits it. Corporate tax may be borne by shareholders, workers, or consumers rather than only by corporations.
Pass-through taxation: A tax treatment in which business income is generally allocated to owners and taxed on their individual returns. It contrasts with taxing a corporation on its profits as a separate taxable entity.
Transfer pricing: The pricing of transactions between related entities within the same multinational group. Those prices affect how multinational profits are divided among countries’ corporate tax bases.
Corporate personhood: The legal treatment of a corporation as an entity distinct from its owners, with rights and obligations of its own. Separate corporate legal identity helps explain why governments can tax a corporation apart from its shareholders.
Corporate tax rate: The percentage applied to a corporation’s taxable income to calculate tax before credits and other adjustments. The rate determines how strongly each unit of taxable profit affects the tax bill.
Deadweight loss: The loss of economic surplus caused when a tax or other intervention prevents mutually beneficial activity. Corporate taxation can alter investment and production decisions, creating costs beyond revenue collected.
Dividend tax: A tax on distributions of corporate profits to shareholders. It may apply after corporate tax has already been paid on the profits distributed.
Base erosion and profit shifting: Practices that exploit gaps between tax systems to shift profits and erode taxable bases. It frames international concerns about corporations’ reported profits diverging from economic activity.
Corporation: A legal entity formed under law, distinct from its owners and capable of holding rights and obligations. Corporate tax applies to this legal form rather than to every business organization.

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