We’ve posted a new “Fiscal Fact” to the website this morning comparing statutory corporate income taxA corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax. rates of the OECD countries. By this measure, the U.S. average statutory rate of 39.3 ranks second-highest, just behind Japan’s 39.5 and well above the OECD average of 28.7.
Here’s the full table of average statutory rates:
| Country | Corporate Tax Rate in 2000[1] | Rank in 2000 | Corporate Tax Rate in 2006 | Rank in March 2006 |
| Japan | 40.9 | 3 | 39.5 | 1 |
| United States[2] | 39.4 | 6 | 39.3 | 2 |
| Germany | 52 | 1 | 38.9 | 3 |
| Canada | 44.6 | 2 | 36.1 | 4 |
| France | 37.8 | 7 | 35 | 5 |
| Spain | 35 | 11 | 35 | 5 |
| Belgium | 40.2 | 4 | 34 | 7 |
| Italy | 37 | 9 | 33 | 8 |
| New Zealand | 33 | 16 | 33 | 8 |
| Greece | 40 | 5 | 32 | 10 |
| Netherlands | 35 | 11 | 31.5 | 11 |
| Luxembourg | 37.5 | 8 | 30.4 | 12 |
| Mexico | 35 | 11 | 30 | 13 |
| Australia | 34 | 14 | 30 | 13 |
| Turkey | 33 | 16 | 30 | 13 |
| United Kingdom | 30 | 21 | 30 | 13 |
| Denmark | 32 | 18 | 28 | 17 |
| Norway | 28 | 26 | 28 | 17 |
| Sweden | 28 | 26 | 28 | 17 |
| Portugal | 35.2 | 10 | 27.5 | 20 |
| Korea | 30.8 | 20 | 27.5 | 20 |
| Czech Republic | 31 | 19 | 26 | 22 |
| Finland | 29 | 24 | 26 | 22 |
| Austria | 34 | 14 | 25 | 24 |
| Switzerland | 24.9 | 28 | 21.3 | 25 |
| Poland | 30 | 21 | 19 | 26 |
| Slovak Republic | 29 | 24 | 19 | 26 |
| Iceland | 30 | 21 | 18 | 28 |
| Hungary | 18 | 30 | 16 | 29 |
| Ireland | 24 | 29 | 12.5 | 30 |
| OECD Average[3] | 33.6 | 28.7 | ||
| Note: Small changes are usually attributable to changes in sub-national rates. | ||||
| [1] Rates for 2000 and 2006 are combined central and sub-central tax rates. Where sub-central income tax is deductible against central government tax, this is reflected in the net rate of the central government. | ||||
| [2] The sub-central tax rate for the U.S. is calculated as a weighted average of state corporate income marginal income tax rates, 6.7 percent in 2000 and 6.6 percent in 2006, deductible in both years from federal taxable income. | ||||
| [3] Unweighted average. |
A cautionary note about comparisons. Within countries, some industries and corporate activities are penalized much more heavily than others—a fact that’s masked by overall statutory averages. Average statutory rates can differ dramatically from average effective taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. rates. And thanks to various tax preferences, both may differ sharply from marginal tax rates, which exert the most powerful influence on day-to-day investment decisions of companies.
For example, a recent KPMG study ranked the United Arab Emirates as having the highest average statutory tax rate of 55 percent among the 86 countries it studied. However, it turns out the UAE has no federal corporate tax, only provincial ones. The top rate for any industry may by 55 percent, but in practice it applies only to oil companies, and sometimes lawmakers “negotiate” special rates with individual companies as high at 85 percent. In contrast, foreign banks are taxed at just 20 percent, and some industries aren’t taxed at all.
Here in the U.S., while the top federal corporate tax rate is 35 percent, state corporate tax rates add anywhere from less than 1 percent to 12 percent to that figure, resulting in vastly different statutory tax rates based on a company’s location. U.S. companies unlucky enough to be headquartered in Iowa face a top statutory corporate tax rate of 47 percent, while Washington State corporations face only the 35 percent federal rate.
The lesson? Statutory average tax rates often differ substantially from effective rates. Even within countries, companies commonly face widely disparate effective tax rates based on location, industry, income—and whether lawmakers view them as worthy of special preferences or deserving of penalties.
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