2026 International Tax Competitiveness Index
The structure of a country’s tax code is a determining factor of its economic performance. A well-structured tax code is easy for taxpayers to comply with and can promote economic development while raising sufficient revenue for a government’s priorities. In contrast, poorly structured tax systems can be costly, distort economic decision-making, and harm domestic economies.
Many countries have recognized this and have reformed their tax codes. Over the past few decades, marginal tax rates on corporate and individual income have declined significantly across the Organisation for Economic Co-operation and Development (OECD). Now, most OECD nations raise a significant amount of revenue from broad-based taxes such as payroll taxes and value-added taxes (VAT).
Not all recent changes in tax policy among OECD countries have improved the structure of tax systems; some had a negative impact. Though some countries, like Austria, have reduced their corporate income tax rates by several percentage points, others, like France, the Slovak Republic, and Slovenia, have increased them. Corporate tax base improvements have occurred in Canada, Germany, Lithuania, the United Kingdom, and the United States, while the corporate tax base has been made less competitive in the Czech Republic and Slovenia. Germany and Finland are phasing out temporary improvements to their corporate tax bases that Lithuania, the United Kingdom, and the United States have made permanent and expanded.
In recent years, tax policy has increasingly drifted away from its traditional roles of raising government revenue and encouraging investment into the toolbox of international tax and trade disputes, with import tariffs, digital service levies, and extraterritorial taxes deployed to exert economic pressure. In this environment, policymakers should refocus on neutral, internationally competitive tax policies that raise revenue with minimal harm to investment and economic growth. The variety of approaches to taxation among OECD countries creates a need to evaluate these systems relative to each other. For that purpose, we have developed the International Tax Competitiveness Index—a relative comparison of OECD countries’ tax systems with respect to competitiveness and neutrality.
The International Tax Competitiveness Index (ITCI) seeks to measure the extent to which a country’s tax system adheres to two important aspects of tax policy: competitiveness and neutrality.
A competitive tax code is one that keeps marginal effective tax rates low. In today’s globalized world, capital is highly mobile. Businesses can choose to invest in any number of countries throughout the world to find the highest rate of return. This means that businesses will look for countries with lower tax rates on investment to maximize their after-tax rate of return. If a country’s tax rate is too high, it will drive investment elsewhere, leading to slower economic growth. In addition, high marginal tax rates can impede domestic investment and lead to tax avoidance.
According to research from the OECD, corporate taxes are most harmful for economic growth, with personal income taxes and consumption taxes being less harmful. Taxes on immovable property have the smallest impact on growth.
Separately, a neutral tax code is simply one that seeks to raise the most revenue with the fewest economic distortions. This means that it doesn’t favor consumption over saving, as happens with investment taxes and wealth taxes. It also means few or no targeted tax breaks for specific activities carried out by businesses or individuals.
As tax laws become more complex, they also become less neutral. If, in theory, the same taxes apply to all businesses and individuals, but the rules are such that large businesses or wealthy individuals can change their behavior to gain a tax advantage, this undermines the neutrality of a tax system.
A tax code that is competitive and neutral promotes sustainable economic growth and investment while raising sufficient revenue for government priorities.
There are many factors unrelated to taxes which affect a country’s economic performance. Nevertheless, taxes play an important role in the health of a country’s economy.
To measure whether a country’s tax system is neutral and competitive, the ITCI looks at more than 40 tax policy variables. These variables measure not only the level of tax rates, but also how taxes are structured. The Index looks at a country’s corporate taxes, individual income taxes, consumption taxes, property taxes, and the treatment of profits earned overseas. The ITCI gives a comprehensive overview of how developed countries’ tax codes compare, explains why certain tax codes stand out as good or bad models for reform, and provides important insight into how to think about tax policy.
Due to some data limitations, recent tax changes in some countries may not be reflected in this year’s version of the International Tax Competitiveness Index.
Cross-Border Tax Rules
In an increasingly globalized economy, businesses often expand beyond the borders of their home countries to reach customers and build supply chains around the world. Countries have defined rules that determine how, or if, corporate income earned in foreign countries is taxed domestically.
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Cross-border tax rules comprise the systems and regulations that countries apply to those business activities.
There has been a growing trend of moving from worldwide taxation toward a system of territorial taxation, in which a country’s corporate tax is limited to profits earned within its borders. In a pure territorial tax system, corporations only pay taxes to the country in which they earn income. Since the 1990s, the number of OECD countries with worldwide tax systems has dropped from more than 20 to a handful.
The US has a somewhat unique approach. In addition to standard controlled foreign corporation (CFC) rules and an exemption for foreign-sourced dividends, it has both inbound and outbound anti-avoidance measures. As part of the Tax Cuts and Jobs Act (TCJA) in December 2017, the United States adopted a hybrid international tax system that exempted foreign-sourced dividends from domestic taxation, but also erected stronger and more complex base erosion rules. The US system under the TCJA had three pieces: global intangible low-taxed income (GILTI), foreign-derived intangible income (FDII), and the base erosion and anti-abuse tax (BEAT). GILTI liability was effectively a 10.5 percent minimum tax on supra-normal returns derived from certain foreign investments earned by US companies. FDII was designed to be a reduced rate on exports of US companies connected to intellectual property located in the US. Effectively, FDII earnings were taxed at 13.125 percent. Paired together, GILTI and FDII created a worldwide tax on intangible income.
BEAT is a policy focused on cross-border deductible payments. It is designed as a 10.5 percent minimum tax on US-based multinationals with gross receipts of $500 million or more. The tax applies to payments by those large multinationals if payments to CFCs exceed 3 percent (2 percent for certain financial firms) of total deductions taken by a corporation.
The One Big Beautiful Bill Act (OBBBA) of July 2025 amended some of these provisions by removing their limitation to income from intangible assets and renamed them. Beginning in 2026, GILTI has been replaced with net CFC-tested income (NCTI) and FDII has been replaced with foreign-derived deduction eligible income (FDDEI). NCTI acts as a minimum tax of between 12.6 and 14 percent on all foreign income of US companies. FDDEI is a 14 percent tax on US income connected to exports.
The proposal for a global minimum tax is dramatically changing the landscape for cross-border tax rules. Many OECD countries are proceeding to implement the global minimum tax rules. As of July 2026, 28 OECD countries have adopted an income-inclusion rule under Pillar Two. Ten countries have not adopted an IIR yet. Further, 27 OECD countries have so far adopted an undertaxed-profits rule (UTPR), similar to BEAT in the US.
The Cross-Border Tax Rules category has four subcategories: dividends and capital gains exemptions (territoriality), withholding taxes, tax treaties, and anti-tax avoidance rules.
Subcategory Breakdown
How each of the 38 countries scores on the parts that make up its cross-border tax rules score. Select a country to see its breakdown in detail.
| Rank | Country | Score | Dividend/Capital Gains Exemption | Withholding Taxes | Tax Treaties | Anti-Tax Avoidance |
|---|---|---|---|---|---|---|
| #1 | United Kingdom | 100.0 | #1 100.0 | #10 67.7 | #1 100.0 | #14 42.2 |
| #2 | Switzerland | 98.8 | #1 100.0 | #29 43.7 | #3 84.1 | #2 87.4 |
| #3 | Netherlands | 93.2 | #1 100.0 | #4 87.1 | #6 75.9 | #14 42.2 |
| #4 | Hungary | 93.0 | #1 100.0 | #1 100.0 | #15 67.0 | #14 42.2 |
| #5 | Luxembourg | 89.5 | #1 100.0 | #4 87.1 | #14 69.6 | #14 42.2 |
| #6 | Latvia | 86.6 | #16 79.9 | #1 100.0 | #26 54.3 | #5 62.2 |
| #7 | Estonia | 82.8 | #16 79.9 | #3 91.3 | #27 53.7 | #5 62.2 |
| #8 | Turkey | 81.9 | #15 85.8 | #17 62.3 | #8 74.0 | #12 52.9 |
| #9 | Germany | 81.8 | #14 96.5 | #14 63.6 | #8 74.0 | #14 42.2 |
| #10 | Austria | 78.9 | #1 100.0 | #18 59.0 | #13 70.2 | #14 42.2 |
| #11 | Czech Republic | 77.8 | #16 79.9 | #15 62.9 | #5 77.2 | #14 42.2 |
| #12 | Sweden | 75.8 | #1 100.0 | #8 74.2 | #18 65.8 | #31 25.9 |
| #13 | France | 75.6 | #29 74.5 | #19 56.9 | #2 91.1 | #31 25.9 |
| #14 | New Zealand | 74.6 | #1 100.0 | #7 75.8 | #35 39.7 | #9 61.1 |
| #15 | Norway | 74.0 | #26 78.7 | #6 78.5 | #17 66.4 | #28 34.0 |
| #16 | Lithuania | 72.6 | #16 79.9 | #9 69.2 | #30 51.2 | #5 62.2 |
| #17 | Slovak Republic | 72.3 | #16 79.9 | #22 53.0 | #23 61.3 | #5 62.2 |
| #18 | Israel | 70.6 | #33 65.2 | #34 37.1 | #28 52.4 | #1 100.0 |
| #19 | Greece | 70.3 | #1 100.0 | #11 67.1 | #32 50.5 | #14 42.2 |
| #20 | Spain | 68.9 | #27 76.5 | #26 48.6 | #10 73.4 | #14 42.2 |
| #21 | Belgium | 67.7 | #1 100.0 | #37 25.7 | #10 73.4 | #14 42.2 |
| #22 | Italy | 66.7 | #27 76.5 | #31 38.7 | #4 81.6 | #28 34.0 |
| #23 | Australia | 65.5 | #1 100.0 | #12 66.5 | #34 42.9 | #14 42.2 |
| #24 | Finland | 64.2 | #16 79.9 | #13 65.5 | #20 63.2 | #31 25.9 |
| #25 | Poland | 64.1 | #16 79.9 | #23 51.4 | #15 67.0 | #28 34.0 |
| #26 | Iceland | 63.8 | #1 100.0 | #20 56.5 | #33 44.2 | #13 45.9 |
| #27 | Ireland | 61.9 | #16 79.9 | #27 46.2 | #23 61.3 | #14 42.2 |
| #28 | Canada | 61.2 | #32 65.7 | #32 38.1 | #10 73.4 | #14 42.2 |
| #29 | Costa Rica | 59.4 | #1 100.0 | #21 54.2 | #38 16.9 | #4 78.5 |
| #30 | Slovenia | 56.7 | #35 63.0 | #15 62.9 | #30 51.2 | #14 42.2 |
| #31 | Japan | 56.0 | #31 69.6 | #25 49.5 | #18 65.8 | #31 25.9 |
| #32 | Denmark | 54.0 | #16 79.9 | #30 41.2 | #22 61.9 | #31 25.9 |
| #33 | Portugal | 53.5 | #16 79.9 | #32 38.1 | #20 63.2 | #31 25.9 |
| #34 | Korea | 53.5 | #36 49.5 | #28 45.5 | #7 75.3 | #31 25.9 |
| #35 | Colombia | 41.7 | #33 65.2 | #24 50.5 | #37 24.5 | #10 54.8 |
| #36 | Chile | 41.3 | #37 30.3 | #36 32.8 | #36 37.8 | #3 81.1 |
| #37 | United States | 41.0 | #30 71.6 | #37 25.7 | #25 55.0 | #31 25.9 |
| #38 | Mexico | 40.3 | #37 30.3 | #35 34.9 | #28 52.4 | #11 54.1 |
Source: 2026 International Tax Competitiveness Index.
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About the Authors
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
Luis Zarka was a 2026 Transatlantic Tax Fellow with the Tax Foundation’s Center for Global Tax Policy.
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