Complexity of the Corporate Income Tax in Europe

As today’s 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. map shows, the complexity of 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. es varies greatly across European countries.

Corporate income tax (CIT) codes should be easy for corporations to comply with and for governments to administer and enforce. Simple, well-designed CIT systems can help encourage business activity, leading to increased investment and employment. In contrast, complex CIT codes can lead taxpayers to make inadvertent errors or enable tax avoidance.

One way to quantify corporate tax code complexity is to measure the time needed to comply with the business tax. More precisely, the time to comply indicator reflects the number of hours (on average) it takes per year to prepare, file, and pay (or withhold) CIT, as measured by PwC’s “Paying Taxes 2018” component of the “Doing Business” report from the World Bank.

Estonia, arguably the country with the most efficient tax system in the developed world, allows its taxpayers to file business taxes (as well as other taxes) electronically. Taxpayers only need to review a pre-filled form, make any necessary changes, and approve the document with a digital signature. As a result, Estonia’s CIT compliance takes the least amount of time in Europe, at five hours, followed by 12 hours in Ireland and 15 hours in Switzerland.

Slovenia (86 hours), Greece (78 hours), and Portugal (63 hours) are the countries where taxpayers need the most time for CIT compliance.

Apart from compliance time, the number of tax payments is also an informative measure for tax complexity. The tax payments indicator reflects the number of separate tax payments required for businesses to make throughout the year. This number can be influenced by separate payments for different taxes, such as CIT, sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. , VAT, and labor taxes. This indicator also reveals how easier compliance can be put in place through electronic filing: Where a tax is paid and filed online by the majority of medium-size businesses, only one payment is included in the indicator (even where payments are made more frequently).

Corporate Tax Code Complexity

Source: Tax Foundation’s International Tax Competitiveness Index. (Measures are based on PwC’s “Paying Taxes 2018” component of the “Doing Business” report from the World Bank.)
Country	Hours Needed to Comply with the Corporate Income Tax per Year	Number of Tax Payments and Withholdings
Austria	46	9
Belgium	21	9
Czech Republic	53	6
Denmark	25	9
Estonia	5	8
Finland	21	5
France	28	7
Germany	41	8
Greece	78	7
Hungary	35	9
Iceland	40	8
Ireland	12	8
Italy	39	13
Latvia	23	6
Luxembourg	19	11
Netherlands	21	8
Norway	24	3
Poland	59	5
Portugal	63	7
Slovak Republic	46	7
Slovenia	86	9
Spain	33	8
Sweden	50	5
Switzerland	15	12
Turkey	45	10
United Kingdom	37	7

Of all European countries covered, Norway’s businesses are subject to the lowest number of tax payments, with three. In contrast, Italy is the country with the highest number of required tax payments, with 13.

Next week, we will continue our series on tax complexity by examining compliance time and payments associated with individual taxes in Europe.

International Tax Competitiveness Index

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