Corporate tax law is the body of statutes, regulations, judicial decisions, and administrative rulings that provide authority for governmental entities to levy fees on corporate operations under their jurisdiction. This law is typically codified in a tax code and administered by a taxing agency. Tax law is different in every jurisdiction, but there some common ways corporations are taxed. The most prominent and consistent area of corporate tax law across jurisdictions is the subject of corporate income taxation.
Corporations may be required to pay various types of taxes, depending upon the tax code of the country where it is located. Income, sales, property, and employment taxes are some of the governmental assessments that a corporation might have to pay to support operations. When the subject of corporate tax law is considered, it primarily concerns itself with taxation on corporate income and on distributions to its holders of equity and debt instruments, although it does also address other types of corporate taxation when necessary.
Most countries tax corporate profits at the national level. For example, the U.S. requires corporations to file an income tax return every year with the Internal Revenue Service (IRS). The U.S. taxes corporate profits made by domestic corporations anywhere in the world and any income made in the U.S. by foreign corporations operating within the country. Corporate distributions to shareholders are also taxed on an individual’s tax return. Owners of a corporation are technically taxed both when the corporation files a return and again at the shareholder level when the profits are distributed.
The U.S. has one of the highest corporate income tax rates in the world. Corporate tax law in that country is primarily concerned with minimizing a corporation’s income tax burden, disputing IRS tax assessments, and determining where to locate operations so that the tax obligation is as low as possible. Many U.S. corporations have located their headquarters in other countries with more favorable tax structures. Corporate tax lawyers are then engaged to dispute what should legitimately be taxed by the U.S. government, since the corporation has relocated its headquarters elsewhere.
States are also able to tax corporate income in the U.S. Many, though not all, states assess their own tax on any corporation that is registered in the state or on the portion of the profit made in-state by a foreign corporation. Some localities, such as cities and counties, also tax corporate income. A U.S. corporation may find itself obligated to submit federal, state, and local tax returns each year in addition to a tax return in every country where it has international sales and operations. Corporate tax law attempts to mitigate these obligations across jurisdictions.
