The composition of the Fortune Global 500 (FG500) companies by headquarters location has changed as developing countries’ economies have grown to more than half of world GDP. The number of US-headquartered companies among the largest 500 companies, ranked by revenue, has fallen from 179 in 2000 to 132 in 2017. At the same time, the number of China-headquartered companies grew from 10 in 2000 to 109 in 2017.
The 26% drop in the share of US-headquartered companies in the FG500 is due to many factors, and often cited in calls for US corporate income tax reform. Countries’ tax systems play a role in the success of their headquartered companies and can affect the choice of headquarter location, particularly following mergers.
The table below shows a strong positive correlation between the change in a country’s share of FG500 company headquarters and the change in its share of global GDP. While the US share of FG500 companies declined 26% between 2000 and 2017, the US share of world GDP declined by 19% between 2000 and 2016. The other G-7 countries (Japan, Germany, France, the UK, Italy and Canada) also experienced a similar decline in both their share of the FG500 and world GDP. As China, India and other developing economies have grown faster, their economies have been able to support larger companies, both multinational and purely domestic companies.
Most of the decline in the US share of the FG500 occurred between 2000 and 2009. Since 2009, the decline in US-headquartered FG500 companies slowed considerably as the US share of world GDP stabilized and actually increased slightly. Two of the eight “lost” companies since 2009 were “inversions” of Johnson Controls and Medtronic to Ireland between 2016 and 2017, both tax-driven.
Japan and the UK moved from worldwide to territorial tax systems in 2010. As shown in the table, the switch to territorial did not stop the decline in their share of FG500 companies since enactment. The U.S., China and South Korea have worldwide tax systems, although some academics have said the US system is “dumb” territorial with significant tax planning around deferral and foreign tax credits, and also significant base erosion from profit shifting out of the U.S.
Corporate headquarter are important as the location for executive decision making, highly paid executives and other headquarter staff, associated service providers, and prestige for the country and city. Most of the companies' employment and investment may not be at the headquarters location, rather located at regional headquarters, research labs or large operating facilities.
Overall tax systems, including tax rates, tax bases, and tax uncertainty, matter in headquarter and other location decisions. But so do the overall size and growth of the domestic economy, public infrastructure, skilled labor force, and fiscal and economic policies and their stability.
Tom Neubig