Note 2-35

(35) According to OECD (2002), many OECD countries apply reduced tax rates to small and medium-sized enterprises. While such measures have an advantage in that they increase after-tax profits of small and medium-sized enterprises, they also result in encouraging corporations to underreport their income or to divide operations for tax purposes. Therefore, it is pointed out that if the tax rate were made too progressive in accordance with the size of corporations, it would distort business activity as corporations try to have a lower tax rate applied.