Changes in the Effective Average Corporate Income Tax Rates in Europe

July 11, 2019

Effective average corporate income tax rates are informative as they reflect the overall tax burden on businesses, a decisive factor for investment decisions. Today’s map shows how these effective tax rates have changed across Europe between 2008 and 2018.

Effective average corporate income tax rates capture not only statutory tax rates but also provisions impacting the tax base. These include, for example, capital allowances, inventory valuation methods, international tax rules, and the integration of corporate income taxes into individual income taxes.

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Of all 31 countries covered, Hungary (-8.4 percentage-points), Malta (-7.8 percentage-points), and the United Kingdom (-7.4 percentage-points) have seen the most significant decreases in the effective corporate income tax rate between 2008 and 2018.

Greece, Latvia, and Cyprus are the countries with the largest increases in the effective tax rates, at 5.8, 2.9, and 2.4 percentage-points, respectively.

On average, the effective tax rate declined by 1.5 percentage-points between 2008 and 2018 in all countries covered, compared to a 1.7 percentage-point decline in the statutory rate.

Much attention has been paid to declining statutory corporate income tax rates. However, as the following table shows, these cuts in statutory tax rates are not always mirrored by changes in effective tax rates. This is because some countries decide to combine a cut in the corporate tax rate with measures adjusting the corporate tax base (such as changing capital allowances or implementing patent boxes).

Table 1. Effective and Statutory Corporate Income Tax Rates

Sources: EU Tax Database, ZEW Publication, OECD Tax Database

  Effective Average Corporate Income Tax Rate Statutory Corporate Income Tax Rate
  2008 2018 Percentage-Point Difference 2008 and 2018 2008 2018 Percentage-Point Difference 2008 and 2018
Austria (AT) 23.0% 23.1% 0.1 25.0% 25.0% 0.0
Belgium (BE) 24.9% 24.8% -0.1 34.0% 29.6% -4.4
Bulgaria (BG) 8.9% 9.0% 0.1 10.0% 10.0% 0.0
Croatia (HR) 16.5% 14.8% -1.7 20.0% 18.0% -2.0
Cyprus (CY) 10.6% 13.0% 2.4 10.0% 12.5% 2.5
Czech Republic (CZ) 18.4% 16.7% -1.7 21.0% 19.0% -2.0
Denmark (DK) 22.6% 19.8% -2.8 25.0% 22.0% -3.0
Estonia (EE) 16.5% 15.7% -0.8 21.0% 20.0% -1.0
Finland (FI) 24.5% 19.6% -4.9 26.0% 20.0% -6.0
France (FR) 34.6% 33.4% -1.2 34.4% 34.4% 0.0
Germany (DE) 28.2% 28.9% 0.7 29.4% 29.9% 0.5
Greece (GR) 21.8% 27.6% 5.8 35.0% 29.0% -6.0
Hungary (HU) 19.5% 11.1% -8.4 21.3% 10.8% -10.5
Ireland (IE) 14.4% 14.1% -0.3 12.5% 12.5% 0.0
Italy (IT) 27.3% 23.7% -3.6 31.4% 27.8% -3.6
Latvia (LV) 13.8% 16.7% 2.9 15.0% 20.0% 5.0
Lithuania (LT) 12.7% 13.6% 0.9 15.0% 15.0% 0.0
Luxembourg (LU) 25.9% 22.8% -3.1 29.6% 26.0% -3.6
Malta (MT) 32.2% 24.4% -7.8 35.0% 35.0% 0.0
Netherlands (NL) 23.1% 22.5% -0.6 25.5% 25.0% -0.5
Norway (NO) 26.5% 21.8% -4.7 28.0% 23.0% -5.0
Poland (PL) 17.4% 17.5% 0.1 19.0% 19.0% 0.0
Portugal (PT) 23.7% 21.4% -2.3 26.5% 31.5% 5.0
Romania (RO) 14.8% 14.7% -0.1 16.0% 16.0% 0.0
Slovakia (SK) 16.8% 18.7% 1.9 19.0% 21.0% 2.0
Slovenia (SI) 20.0% 17.3% -2.7 22.0% 19.0% -3.0
Spain (ES) 32.8% 30.1% -2.7 30.0% 25.0% -5.0
Sweden (SE) 24.6% 19.4% -5.2 28.0% 22.0% -6.0
Switzerland (CH) 18.7% 18.6% -0.1 21.2% 21.2% -0.0
Turkey (TR) 18.6% 19.2% 0.6 20.0% 22.0% 2.0
United Kingdom (GB) 28.0% 20.6% -7.4 28.0% 19.0% -9.0
Simple Average 21.3% 19.8% -1.5 23.7% 21.9% -1.7

In the United Kingdom, for example, the corporate tax rate was cut from 28 percent in 2008 to 19 percent by 2018, a 9 percentage-point decrease. The effective tax rate, however, only declined by 7.4 percentage-points, from 28 percent to 20.6 percent. This discrepancy is partially because the UK broadened its corporate tax base by lowering capital allowances for machinery and industrial buildings, partly offsetting the tax savings from the tax rate cut.

As this example shows, not only changes in statutory tax rates but also measures adjusting the tax base impact the tax burden businesses face. Effective tax rates reflect both and can thus be a more informative measure when analyzing corporate tax reforms.

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