Comparing Europe’s Tax Systems: Corporate Taxes
3 min readBy:On October 17, we released the International Tax Competitiveness Index 2022, a study that measures and compares the competitiveness and neutrality of all 38 Organisation for Economic Co-operation and Development (OECD) countries’ 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. 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 taxA consumption tax is typically levied on the purchase of goods or services and is paid directly or indirectly by the consumer in the form of retail sales taxes, excise taxes, tariffs, value-added taxes (VAT), or an income tax where all savings is tax-deductible. es, property taxA 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. es, and the international tax system.
Today, we look at how European countries’ 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. systems compare within the OECD.
Unlike other studies that compare tax burdens, the Index measures how well a country structures its tax code. A competitive and neutral tax code 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 allowanceA capital allowance is the amount of capital investment costs, or money directed towards a company’s long-term growth, a business can deduct each year from its revenue via depreciation. These are also sometimes referred to as depreciation allowances. s, inventory valuation, and allowances for corporate equity. We also consider whether and to what extent distortionary patent boxA 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. es and R&D tax incentives are granted, the application of digital services taxes, and the complexity of the corporate income tax.
Learn more about your country’s rankings on the 2022 International Tax Competitiveness Index here.
Latvia and Estonia have the best corporate tax systems in the OECD. Both countries have a cash-flow tax on business profits, meaning 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, Portugal has the least competitive and neutral corporate income tax system in Europe (Colombia ranks the lowest in the OECD). At 31.5 percent, Portugal levies one of the highest corporate tax rates on business profits. Only limited net operating losses can be carried forward and carried back, and purchases of machinery, buildings, and intangibles cannot be fully expensed.
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 2020 and 2022 (for all OECD countries) | ||||
|---|---|---|---|---|
| OECD Country | 2020 Rank | 2021 Rank | 2022 Rank | Change from 2021 to 2022 |
| Australia (AU) | 30 | 28 | 29 | 1 |
| Austria (AT) | 25 | 22 | 23 | -1 |
| Belgium (BE) | 11 | 12 | 14 | -2 |
| Canada (CA) | 24 | 26 | 27 | -2 |
| Chile (CL) | 35 | 20 | 13 | 7 |
| Colombia (CO) | 36 | 35 | 38 | -3 |
| Costa Rica (CR) | 34 | 36 | 36 | 0 |
| Czech Republic (CZ) | 6 | 6 | 6 | 0 |
| Denmark (DK) | 10 | 17 | 18 | -1 |
| Estonia (EE) | 2 | 2 | 2 | 0 |
| Finland (FI) | 9 | 9 | 9 | 0 |
| France (FR) | 38 | 37 | 35 | 2 |
| Germany (DE) | 29 | 30 | 30 | 0 |
| Greece (GR) | 20 | 16 | 19 | -3 |
| Hungary (HU) | 5 | 5 | 5 | 0 |
| Iceland (IS) | 13 | 15 | 16 | -1 |
| Ireland (IE) | 4 | 4 | 4 | 0 |
| Israel (IL) | 16 | 13 | 17 | -1 |
| Italy (IT) | 27 | 27 | 24 | 3 |
| Japan (JP) | 32 | 32 | 33 | -1 |
| Korea (KR) | 33 | 34 | 34 | 0 |
| Latvia (LV) | 1 | 1 | 1 | 0 |
| Lithuania (LT) | 3 | 3 | 3 | 0 |
| Luxembourg (LU) | 22 | 25 | 26 | -1 |
| Mexico (MX) | 28 | 29 | 28 | 1 |
| Netherlands (NL) | 23 | 24 | 25 | -1 |
| New Zealand (NZ) | 31 | 33 | 32 | 1 |
| Norway (NO) | 15 | 14 | 15 | -1 |
| Poland (PL) | 12 | 11 | 12 | -1 |
| Portugal (PT) | 37 | 38 | 37 | 1 |
| Slovak Republic (SK) | 18 | 19 | 21 | -2 |
| Slovenia (SI) | 7 | 7 | 7 | 0 |
| Spain (ES) | 26 | 31 | 31 | 0 |
| Sweden (SE) | 8 | 8 | 8 | 0 |
| Switzerland (CH) | 14 | 10 | 11 | -1 |
| Turkey (TR) | 17 | 23 | 20 | 3 |
| United Kingdom (GB) | 21 | 18 | 10 | 8 |
| United States (US) | 19 | 21 | 22 | -1 |
| Source: International Tax Competitiveness Index 2022. | ||||
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