Reliance on Corporate Income Tax Revenue in Europe

A recent report on 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. revenue sources shows the extent to which OECD countries rely on different tax types. Today’s map looks at the 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. , which, compared to individual taxes, social insurance taxes, and 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, generates a relatively small share of tax revenue in Europe. In 2017, the most recent year for which data is available, the European countries covered in today’s map raised on average 7.5 percent of total tax revenue from corporate income taxes.

Luxembourg relied the most on its corporate income tax in 2017, at 13.6 percent of total tax revenue, followed by Ireland (12.2 percent) and Norway (12 percent). Estonia (4.7 percent), Slovenia (4.9 percent), and Hungary (4.9 percent) relied the least on the corporate income tax.

Despite declining corporate income tax rates over the last thirty years in Europe (and other parts of the world), average revenue from corporate income taxes as a share of total tax revenue has not declined since 1990. Many countries have been weakening their treatment of capital investment, which has led to broader tax baseThe tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates. s and helped to offset the loss in corporate income tax revenue resulting from lower tax rates.

Corporate income taxes are a direct taxA direct tax is levied on individuals and organizations and cannot be shifted to another payer. Often with a direct tax, such as the personal income tax, tax rates increase as the taxpayer’s ability to pay increases, resulting in what’s called a progressive tax. on corporate profits, and fluctuating business cycles can significantly impact these profits generated by businesses. This can make the corporate income tax a relatively volatile source of revenue.

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