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Complexity of the Corporate Income Tax in Europe

2 min readBy: Elke Asen

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.

corporate income tax complexity, corporate tax compliance, corporate tax complexity Europe

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.

Note: This is part of a map series in which we examine tax complexity in Europe

International Tax Competitiveness Index

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