Reliance on Corporate Income Tax Revenue in Europe

February 11, 2021

Elke Asen

Elke Asen

A recent report on tax revenue sources shows the extent to which OECD countries rely on different tax types. Today’s map looks at the corporate income tax, which, compared to individual taxes, social insurance taxes, and consumption taxes, generates a relatively small share of tax revenue in Europe. In 2019—the most recent year for which data is available—the European countries covered in today’s map raised on average 7.4 percent of total tax revenue from corporate income taxes.

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In 2019, Luxembourg relied the most on its corporate income tax, at 15.1 percent of total tax revenue, followed by Norway (14.4 percent) and Ireland (13.8 percent). Latvia (0.5 percent), Hungary (2.0 percent), and Italy (4.6 percent) relied the least on the corporate income tax.

Despite declining corporate income tax rates over the last 30 years in Europe (and other parts of the world), average revenue from corporate income taxes as a share of total tax revenue has not changed significantly compared to 1990. Many countries have been weakening their tax treatment of capital investment, which has led to broader tax bases and helped offset the loss in corporate income tax revenue resulting from lower tax rates.

Corporate income taxes are a direct 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.

Note: This is part of a map series in which we examine tax revenue sources in Europe.

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A 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.

A 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.

The 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.

A 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.