Corporate Taxes
#29 out of 38 OECD countries
Score 56.3 / 100
vs OECD median −16.9
Best: Hungary
The top marginal corporate income tax rate measures the rate at which each additional dollar of taxable profit is taxed. High marginal corporate tax rates tend to discourage capital formation and thus slow economic growth. Countries with higher top marginal corporate income tax rates than the OECD average receive lower scores than those with lower, more competitive rates.
vs OECD median −1.3
Best: 2 countries tied at 100.0
Business profits are generally determined as revenue (what a business makes in sales) minus costs (the cost of doing business). The corporate income tax is intended to be a tax on these profits. Thus, it is important that a tax code properly defines what constitutes taxable income. If a tax code does not allow businesses to account for all the costs of doing business, it will inflate a business’s taxable income and thus its tax bill. This increases the cost of capital, leading to slower investment and economic growth.
Loss carryover provisions allow businesses to either deduct current year losses against future profits (carryforwards) or deduct current year losses against past profits (carrybacks). Many companies have investment projects with different risk profiles and operate in industries that fluctuate greatly with the business cycle. Carryover provisions help businesses “smooth” their risk and income, making the tax code more neutral across investments and over time.
Ideally, a tax code allows businesses to carry forward their losses for an unlimited number of years, ensuring that a business is taxed on its average profitability over time. While some countries do allow for indefinite loss carryovers, others have time—and deductibility—limits.
The ITCI ranks countries that allow losses to be carried forward indefinitely without limits better than countries that impose time or deductibility restrictions on carryforwards. The ITCI penalizes countries that do not allow any loss carrybacks.
Businesses determine their profits by subtracting costs—such as wages and raw materials—from revenue. However, in most jurisdictions, capital investments—such as in buildings, machinery, and intangibles—are not treated like other regular costs that can be subtracted from revenue in the year the money is spent. Instead, businesses are required to write off these costs over several years or even decades, depending on the type of asset.
Depreciation schedules specify the amounts businesses are legally allowed to write off, as well as the time period over which assets need to be written off. For instance, a government may require a business to deduct an equal percentage of the cost of a machine over a seven-year period. By the end of the depreciation period, the business would have deducted the total initial dollar cost of the asset. However, due to the time value of money (a normal real return plus inflation), write-offs in later years are not as valuable in real terms as write-offs in earlier years. As a result, businesses effectively lose the ability to deduct the full present value of their investment cost. This tax treatment of capital expenses understates true business costs and overstates taxable income in present value terms.
The ITCI measures a country’s capital allowances for three asset types, namely, machinery, industrial buildings, and intangibles. Capital allowances are expressed as a percent of the present value cost that corporations can write off over the life of an asset. A 100 percent capital allowance represents a business’s ability to deduct the full cost of an investment over its life in real terms. Countries that provide faster write-offs for capital investments receive better scores in the ITCI.
Similar to capital investments, the costs of inventories are not written off in the year of purchase. Instead, the costs of inventories are deducted at sale. As a result, governments need to define the total cost of inventories sold. There are generally three methods used to calculate inventories: Last In, First Out (LIFO); Average Cost; and First In, First Out (FIFO).
The method by which a country allows businesses to account for inventories can significantly impact a business’s taxable income. When prices are rising, as is usually the case, LIFO is the preferred method because it allows inventory costs to be closer to true costs at the time of sale. This results in the lowest taxable income for businesses. In contrast, FIFO is the least preferred method because it results in the highest taxable income. The Average Cost method is between FIFO and LIFO.
Countries that allow businesses to choose the LIFO method receive the best scores, those that allow the Average Cost method receive an average score, and countries that only allow the FIFO method receive the worst scores.
Businesses can finance their operations through debt or equity. However, the return on these two types of finance is taxed differently. Standard corporate income tax systems allow tax deductions of interest payments but not of equity costs, effectively providing a tax advantage to debt over equity finance—the so-called “debt bias.” This debt bias can be considered a real risk to economic stability.
There are two broad ways to address this debt bias, namely, limiting the tax deductibility of interest and providing a deduction for equity costs. Limiting the tax deductibility of interest expenses creates new distortions, as interest income usually continues to be fully taxed. An allowance for corporate equity—sometimes referred to as a notional interest deduction—retains the deduction for interest expenses but adds a similar deduction for the normal return on equity, neutralizing the debt bias while eliminating tax distortions to investment.
Countries that have implemented an allowance for corporate equity receive a better score in the Index.
vs OECD median +10.2
Best: Latvia
Good tax policy treats economic decisions neutrally, neither encouraging nor discouraging one activity over another. A tax incentive is a tax credit, deduction, or preferential tax rate that exclusively applies to a specific type of economic activity and can thus distort economic decisions.
For instance, when an industry receives a tax credit for producing a specific product, it may choose to overinvest in that activity, although it might otherwise not be profitable. Additionally, the cost of special provisions is often offset by shifting the burden onto other taxpayers in the form of higher taxes.
In addition, the possibility of receiving incentives invites efforts to secure these tax preferences, such as lobbying, which creates additional deadweight economic loss as firms focus resources on influencing the tax code in lieu of producing products.
The ITCI considers whether countries provide incentives such as patent box provisions and research and development (R&D) tax subsidies. Countries that provide such incentives are scored worse than those that do not.
Due to an increasingly globalized and mobile economy, countries have searched for ways to prevent corporations from reincorporating or shifting operations or profits elsewhere. One response to the increase in capital mobility has been the creation of patent boxes.
Patent boxes—also referred to as intellectual property, or IP, regimes—provide tax rates on income derived from IP that are below statutory corporate tax rates. Eligible types of IP are most commonly patents and software copyrights. Patent boxes are an income-based rather than an expenditure-based tax incentive, limiting its benefits to successful R&D projects that have produced IP rights rather than decreasing the ex ante risks of R&D through cost reductions.
Intellectual property is extremely mobile. Hence, a country can use the lower tax rate of a patent box to entice corporations to hold their intellectual property within its borders. Research suggests that patent boxes are likely to attract new income derived from patents, implying that businesses reduce their corporate tax liability by shifting IP-related income. Tax revenues, however, are likely to decline, as the negative revenue effects of the lower statutory rate on patent income can be only partially offset by revenues from newly attracted patent income.
Instead of providing patent boxes for intellectual property, countries should recognize that all capital is mobile to some degree and lower their corporate tax rates across the board. This would encourage investment of all kinds, rather than merely incentivizing corporations to locate their patents in a specific country.
In the absence of full expensing, expenditure-based R&D tax incentives (partially) offset the tax costs of business investment. Unfortunately, R&D tax incentives are rarely neutral—they usually define very specific activities that qualify—and are often complex in their implementation.
As with other incentives, R&D incentives distort investment decisions and can lead to an inefficient allocation of resources. Additionally, the desire to secure R&D incentives encourages the relabeling of expenses as R&D and lobbying activities that consume resources and detract from investment and production. In Italy, for instance, firms can engage in a negotiation process for incentives, such as easy term loans and tax credits.
Countries could better use the revenue spent on special tax incentives to provide a lower business tax rate across the board, improve the tax treatment of capital investment, or extend loss-carryover provisions.
The implied tax subsidy rate on R&D expenditures, developed by the OECD, measures the extent of expenditure-based R&D tax relief across countries. Implied tax subsidy rates are measured as the difference between one unit of investment in R&D and the pretax income required to break even on that investment unit, assuming a representative firm. In other words, it measures the extent of the preferential treatment of R&D in a given tax system. The more generous the tax provisions for R&D, the higher the implied tax subsidy rates for R&D. An implied subsidy rate of zero means R&D does not receive preferential tax treatment.
Countries that provide more generous expenditure-based R&D tax incentives receive a lower score on the ITCI.
Digital services taxes (DSTs) are taxes on selected gross revenue streams of large digital businesses. Their tax base typically includes revenues either derived from a specific set of digital goods or services (for example, targeted online advertising) or based on the number of digital users within a country. Relatively high domestic and global revenue thresholds limit the tax to large multinationals.
DSTs effectively ring-fence the digital economy by limiting the tax to certain revenue streams of large digital businesses, creating distortions based on firm size and business model. In addition, because DSTs are levied on revenues rather than profits, they do not take into account profitability, and thus disproportionally affect firms with lower profit margins.
Countries that have implemented a DST receive a lower score on the ITCI.
Despite the rise of DSTs, most countries have phased out business taxes that are levied on gross turnover. Turnover taxes do not allow firms to deduct their investment costs, penalizing business investment and cascading throughout the economy. Countries that raise a higher share of business tax revenue from turnover taxes receive a lower score on the ITCI.
The ITCI quantifies corporate tax code complexity by measuring the number of separate taxes (and rates) that apply to business income, the existence of surtax rates on business income, and the amount of revenue countries collect from business profits taxes other than the corporate income tax. These burdens are measured by tallying up the separate rates that apply to business income, identifying applicable surtaxes, and relying on OECD revenue data to measure the share of revenue from taxes on business income other than the corporate income tax.
Countries that have multiple rates that apply to corporate income, surtaxes, and collect revenue on income and profits outside of normal income taxes receive worse scores on the ITCI.
The corporate income tax is a direct tax on the profits of a corporation. All OECD countries levy a tax on corporate profits, but the tax rates and bases vary significantly across countries.
Corporate income taxes reduce the after-tax rate of return on corporate investment. This increases the cost of capital, which leads to lower levels of investment and economic output. Additionally, the corporate tax can lead to lower wages for workers, lower returns for investors, and higher prices for consumers.
Although the corporate income tax has a relatively significant impact on a country’s economy, it raises a relatively low amount of tax revenue for most governments—the OECD average was 11.9 percent of total revenues in 2023.
The ITCI breaks the corporate income tax category into three subcategories: the corporate rate, cost recovery, and incentives and complexity.
The tax rules behind Australia's corporate taxes score, as the Index appendix records them, with the OECD average for each.
| Variable | Australia | OECD average |
|---|---|---|
| Rate | ||
| Top Marginal Corporate Tax Rate | 30.0% | 24.2% |
| Cost Recovery | ||
| Loss Carryback (Number of Years) | 0 | — No average |
| Loss Carryforward (Number of Years) | No Limit | — No average |
| Machinery | 85.1% | 85.9% |
| Industrial Buildings | 47.9% | 50.3% |
| Intangibles | 54.8% | 78.2% |
| Inventory (Best Available) | Average Cost | — No average |
| Allowance for Corporate Equity (Rate and Base) | No | 5 of 38 countries |
| Incentives/Complexity | ||
| Patent Box | No | 18 of 38 countries |
| Implied Tax Subsidy Rates on R&D Expenditures | 0.15 | 0.16 |
| Digital Services Tax | No | 10 of 38 countries |
| Corporate Complexity (Number of separate rates or alternative minimum taxes) | 3 | 2.3 |
| Corporate Complexity (Surtax on corporate income) | No | 4 of 38 countries |
| Corporate Complexity (Share of revenue collected on income from non-standard income taxes) | 0.0% | 8.2% |
| Corporate Complexity (Share of revenue collected from turnover taxes) | 0.0% | 2.0% |
— No average is shown for a variable that describes a rule rather than measuring it.
Source: 2026 International Tax Competitiveness Index, appendix tables.
Alex Mengden is an Economist at the Tax Foundation, where he focuses on international tax issues and tax policy in Europe. He holds a BA in philosophy and economics from the University of Bayreuth and an MSc in economics from the Ludwig Maximilian University of Munich.
Luis Zarka was a 2026 Transatlantic Tax Fellow with the Tax Foundation’s Center for Global Tax Policy.
Sarah Wilbur is Communications Manager at the Tax Foundation where she advances the organization’s institutional reach by developing its corporate communications and media programs.
Jesse Solis is Vice President of Communications at the Tax Foundation, where he leads the communications team and works to build coverage of Tax Foundation’s experts and their work across the globe. He joined the team in 2021 as Communications Manager and became Communications Director in 2024.