Comparing Europe’s Tax Systems: Corporate Taxes

October 22, 2020

Last week, we released the International Tax Competitiveness Index 2020, a study that measures and compares the competitiveness and neutrality of all 36 OECD countries’ tax systems. In the coming weeks, we will illustrate how European OECD countries rank in each of the five components of the Index: corporate income taxes, individual taxes, consumption taxes, property taxes, and the international tax system. Today we look at how European countries’ corporate income tax systems compare within the OECD.

Unlike other studies that compare tax burdens, the Index measures how well a country structures its tax code. A tax code that is competitive and neutral promotes sustainable economic growth and investment while raising sufficient revenue for government priorities. Our corporate income tax component scores countries not only on their corporate tax rates but also on how they handle net operating losses, capital allowances, inventory valuation, and allowances for corporate equity, whether and to what extent distortionary patent boxes and R&D tax incentives are granted, and on the complexity of the corporate income tax.

Comparing Europe’s Tax Systems: Corporate Taxes, Best and Worst Corporate Tax Systems in Europe 2020

Click here to see an interactive version of OECD countries’ corporate tax rankings, then click on your country for more information about what the strengths and weaknesses of its tax system are and how it compares to the top and bottom five countries in the OECD.

Latvia and Estonia have the best corporate tax systems in the OECD. Both countries have a cash-flow tax on business profits. This means that profits only get taxed when they are distributed to shareholders. If a business decides to reinvest its profits instead of paying dividends to shareholders, there is no tax on such profits.

In contrast, France has the least competitive and neutral corporate income tax system in Europe (Japan ranks the lowest in the OECD). At 32 percent, France levies the highest corporate tax rate on business profits. Only limited net operating losses can be carried forward and carried back, purchases of machinery, buildings, and intangibles cannot be fully expensed, and a patent box and extensive R&D tax incentives create economic distortions.

To see whether your country’s corporate tax rank has improved in recent years, check out the table below. To learn more about how we determined these rankings, read our full methodology here.

Corporate Tax Component of the International Tax Competitiveness Index between 2018 and 2020 (for all OECD countries)
OECD Country 2018 Rank 2019 Rank 2020 Rank Change from 2019 to 2020

Australia (AU)

27 29 30 -1

Austria (AT)

19 19 21 -2

Belgium (BE)

18 20 13 +7

Canada (CA)

22 22 23 -1

Chile (CL)

31 32 32 0

Czech Republic (CZ)

7 7 7 0

Denmark (DK)

15 15 16 -1

Estonia (EE)

1 2 2 0

Finland (FI)

6 6 6 0

France (FR)

36 36 35 +1

Germany (DE)

25 27 29 -2

Greece (GR)

32 23 22 +1

Hungary (HU)

4 4 4 0

Iceland (IS)

11 11 10 +1

Ireland (IE)

5 5 5 0

Israel (IL)

29 30 20 +10

Italy (IT)

24 26 27 -1

Japan (JP)

35 35 36 -1

Korea (KR)

33 33 33 0

Latvia (LV)

2 1 1 0

Lithuania (LT)

3 3 3 0

Luxembourg (LU)

28 25 26 -1

Mexico (MX)

30 31 31 0

Netherlands (NL)

23 24 25 -1

New Zealand (NZ)

21 21 24 -3

Norway (NO)

13 12 11 +1

Poland (PL)

8 10 9 +1

Portugal (PT)

34 34 34 0

Slovak Republic (SK)

14 17 18 -1

Slovenia (SI)

12 13 12 +1

Spain (ES)

26 28 28 0

Sweden (SE)

9 8 8 0

Switzerland (CH)

10 9 14 -5

Turkey (TR)

16 14 15 -1

United Kingdom (GB)

17 16 17 -1

United States (US)

20 18 19 -1

Source: International Tax Competitiveness Index 2020.

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A patent box—also referred to as intellectual property (IP) regime—taxes business income earned from IP at a rate below the statutory corporate income tax rate, aiming to encourage local research and development. Many patent boxes around the world have undergone substantial reforms due to profit shifting concerns.

A property tax is primarily levied on immovable property like land and buildings, as well as on tangible personal property that is movable, like vehicles and equipment. Property taxes are the single largest source of state and local revenue in the U.S. and help fund schools, roads, police, and other services.

A 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.