INSIGHT-The Changing Headquarters Landscape for Fortune Global 500

11/15/2019 INSIGHT: The Changing Headquarters Landscape for Fortune Global 500 Companies

Daily Tax Report: State INSIGHT: The Changing Headquarters Landscape for Fortune Global 500 Companies By Brandon Pizzola, Robert Carroll, and James Mackie III Nov. 15, 2019, 3:01 AM

The headquarters of the world’s largest companies by revenue continue to shift away from the U.S. Brandon Pizzola, Robert Carroll, and James Mackie III of EY’s Quantitative Economics and Statistics group analyze the latest statistics.

Bloomberg Law News 2019-11-15T13:46:56242-05:00 2019-11-15T03:01:12000-05:00

The headquarters of the world’s largest companies by revenue continue to shift away from the U.S. and other G7 countries, driven largely by China’s growth in the world economy. Specifically, the number of Fortune Global 500 (FG500) companies–the 500 largest companies by revenue in the world—that are headquartered in the G7 (Canada, France, Germany, Italy, Japan, the U.K. and the U.S.), declined from 420 in 2000 to 269 in 2019.

A significant driver of the FG500 changes in headquarters locations is the growing presence of China. Between 2000 and 2019, the number of FG500 companies with their headquarters in China grew from 10 to 119. Much of this is due to the growth of China’s state-owned enterprises (SOEs), 82 of which were in the FG500 in 2019 compared to 9 in 2000.

Many factors can affect a company’s choice of headquarters location, such as a country’s regional economic growth and stability, local infrastructure, regulatory environment, labor availability and productivity, transportation and other input costs, and tax policies. Table 1 compares how headquarters locations and the top statutory corporate income tax rates have shifted from 2000 to 2019, during which time there have been significant changes in countries’ statutory corporate income tax rates.

Notable trends include:

The number of FG500 companies headquartered in the U.S. declined from 179 (36% of FG500 headquarters) in 2000 to 121 (24% of FG500 headquarters) in 2019 amid a global trend of statutory corporate income tax rate reductions. The average statutory corporate income tax rate countries imposed on non-US- headquartered FG500 companies declined from 39.2% in 2000 to 26.6% in 2019, including both national and subnational corporate income taxes. A number of large economies reduced their top statutory corporate income tax rates significantly between 2000 and 2019.

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The top statutory corporate income tax rate declined by at least 10 percentage points in Germany (22.1 percentage points), Canada (16.5 percentage points), Japan (13.6 percentage points), the U.K. (11.0 percentage points) and the Netherlands (10.0 percentage points). Japan reduced its top statutory corporate income tax rate from 43.3% in 2000 to 29.7% in 2019. While still home to the third-highest number of FG500 companies in 2019, the number of FG500 companies headquartered in Japan fell from 107 to 52 during this period, in part due to years of slow economic growth. Before the Tax Cuts and Jobs Act (TCJA) was enacted at the end of 2017, the top US statutory corporate income tax rate remained essentially unchanged at approximately 39% (including both the federal rate and a weighted average state corporate income tax rate) since 2000. The TCJA reduced the top federal rate to 21% and the top combined federal-state rate to 25.9%. Because this change occurred recently, it is unlikely that its effect on headquarters location would be reflected in the following table. Table 1. Headquarters locations of FG500 companies, 2000 and 2019

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As shown in Figure 1, a significant driver of the change in headquarters locations for the FG500 is the growing presence of China. Between 2000 and 2019, the number of FG500 companies with their headquarters in China grew from 10 to 119, with the composition of companies in the group changing over time. During the same period, the number of FG500 companies headquartered in G7 countries declined from 420 to 269. Similarly, the number of FG500 companies headquartered in Organization for Economic Cooperation and Development (OECD) countries declined from 480 in 2000 to 343 in 2019, and the number in the U.S. declined from 179 to 121.

The OECD consists of Australia, Austria, Belgium, Canada, Chile, Colombia, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Israel, Italy, Japan, South Korea, Latvia, Lithuania, Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Poland, Portugal, the Slovak Republic, Slovenia, Spain, Sweden, Switzerland, Turkey, the U.K. and the U.S.

A notable share of the decline in company headquarters in G7 and OECD countries between 2000 and 2019 is attributable to declines in the U.S. (58 headquarters decline) and Japan (55 headquarters decline). The declines in these two countries accounted for 113 of the 151 headquarters decline in G7 countries and 113 of the 137 decline in OECD countries from 2000 through 2019.

Figure 1. Headquarters locations of FG500 companies, 2000 and 2019

Figure 2. Headquarter locations of FG500 companies, 2019

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Figure 3. Headquarter locations of FG500 companies in Europe, 2019

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Industry composition of FG500 companies

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Figure 4 compares the industry distribution of FG500 companies in 2000 and 2019. In 2019, 24% of FG500 companies were in the financial and professional services industry, which includes banks and insurers. This is down from 27% in 2000. The following industries also experienced declines in their shares of FG500 companies: retail and consumer products (four percentage points); energy, utilities and chemicals (one percentage point); industrial products (three percentage points); and “other,” a catchall category (five percentage points). Increases occurred in technology, communications and entertainment (two percentage points); wholesale/trade (seven percentage points); and natural resources (six percentage points).

Figure 4. Industry distribution of FG500 companies, 2000 and 2019

State-owned enterprises comprise one-fifth of FG500 companies and help explain China’s ascendance

As shown in Figure 5, 112 of the FG500 companies are SOEs in 2019. This is a significant increase from the 27 SOEs in the FG500 in 2000. China accounts for a majority of these SOEs. In 2019, 82 of the 112 SOEs (73% of SOEs) were headquartered in China. By comparison, in 2000, only nine of the 27 SOEs (33% of SOEs) were headquartered in China. Outside of China, SOEs in the FG500 are split between the OECD (13 SOEs) and non-OECD (17 SOEs) countries. SOEs account for $8.2 trillion, or 25%, of the $32.7 trillion of the 2019 FG500 company revenue.

Figure 5. Headquarters locations of FG500 SOEs, 2000 and 2019

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Location of FG500 headquarters within the U.S.

As shown in Figure 6, 121, or 24%, of the FG500 headquarters are located in the U.S. in 2019. The U.S. states with the most FG500 headquarters are: (1) New York (17 headquarters), (2) Texas (16 headquarters), (3) California (11 headquarters), (4) Illinois (11 headquarters), (5) Ohio (7 headquarters) and (6) Minnesota (6 headquarters). These states account for 68, or 56%, of the 121 of FG500 headquarters located in the U.S. Of the 50 states plus the District of Columbia, 22 have no FG500 headquarters (43% of states), 9 have 1 FG500 headquarters (18% of states) and 4 have 2 FG500 headquarters (8% of states).

The US cities with the most FG500 headquarters are: (1) New York City (14 headquarters), (2) Houston (6 headquarters), (3) Atlanta (4 headquarters), (4) Chicago (4 headquarters), (5) Cincinnati (3 headquarters) and (6) Deerfield (3 headquarters). These cities account for 34, or 28%, of the 121 of FG500 headquarters in the U.S.

Figure 6. Headquarter locations of FG500 companies in the U.S., 2019

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Conclusion

Many factors contribute to companies’ choices of headquarters locations, and uncertainty in the global political and trade landscape may cause more shifts in the future. While it is too soon to measure the potential impact of the TCJA on where companies choose to locate their headquarters, the issue was a focal point in the US tax reform debate, in part due to the potential benefits these headquarters may generate within a country.

Each company’s situation is different, and tax and non-tax factors, including a company’s financial performance, play a role in a company’s choice of headquarters location. Companies, industry groups and policymakers need to be aware of the larger trends related to headquarters locations and consider the implications of significant shifts of large headquarters in or out of their local economies.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

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