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Mapped: International Tax Competitiveness by Country
Many multinational companies, such as Google and Facebook, have their European headquarters in Ireland. Why? Ireland has low corporate taxes.
In fact, a country’s tax structure can have a significant impact on its economic performance. Countries with low marginal tax rates encourage business investment, while countries with high taxes may drive investment elsewhere.
This Markets in a Minute from New York life Investments looks at international tax competitiveness among countries within the Organization for Economic Co-operation and Development (OECD).
How is Tax Competitiveness Measured?
The Tax Foundation measured international tax competitiveness using two aspects of tax policy: competitiveness and neutrality.
Competitiveness measures how low a country’s marginal tax rates are. On the other hand, a neutral tax code raises the most revenue with the fewest economic distortions. This means that it doesn’t favor consumption over savings, which is what happens with investment or wealth taxes. It also means there are few or no tax breaks for specific business or individual activities.
With these two aspects in mind, the Tax Foundation looked at five types of taxes:
- Corporate taxes
- Individual income taxes
- Consumption taxes
- Property taxes
- Cross-border taxes
According to research from the OECD, corporate taxes are most harmful for economic growth while taxes on immovable property (real estate) have the smallest impact.
International Tax Competitiveness, Ranked
Here is how the OECD countries rank on their international tax competitiveness. A low score means the country’s taxes are relatively less competitive, while a score of 100 indicates the most competitive tax code among OECD countries.
Country | Overall Rank | Overall Score |
🇪🇪 Estonia | 1 | 100.0 |
🇱🇻 Latvia | 2 | 85.1 |
🇳🇿 New Zealand | 3 | 81.3 |
🇨🇭 Switzerland | 4 | 78.4 |
🇱🇺 Luxembourg | 5 | 76.5 |
🇱🇹 Lithuania | 6 | 76.5 |
🇨🇿 Czech Republic | 7 | 75.5 |
🇸🇪 Sweden | 8 | 72.9 |
🇦🇺 Australia | 9 | 71.3 |
🇳🇴 Norway | 10 | 70.6 |
🇸🇰 Slovak Republic | 11 | 69.3 |
🇳🇱 Netherlands | 12 | 69.2 |
🇭🇺 Hungary | 13 | 69.0 |
🇮🇱 Israel | 14 | 67.6 |
🇫🇮 Finland | 15 | 67.4 |
🇩🇪 Germany | 16 | 67.2 |
🇹🇷 Turkey | 17 | 66.7 |
🇦🇹 Austria | 18 | 65.7 |
🇮🇪 Ireland | 19 | 64.7 |
🇨🇦 Canada | 20 | 64.6 |
🇺🇸 United States | 21 | 62.4 |
🇬🇧 United Kingdom | 22 | 61.8 |
🇧🇪 Belgium | 23 | 61.6 |
🇯🇵 Japan | 24 | 61.5 |
🇸🇮 Slovenia | 25 | 61.3 |
🇰🇷 Korea | 26 | 60.6 |
🇨🇱 Chile | 27 | 58.2 |
🇩🇰 Denmark | 28 | 57.9 |
🇬🇷 Greece | 29 | 57.5 |
🇪🇸 Spain | 30 | 57.1 |
🇨🇴 Colombia | 31 | 55.0 |
🇮🇸 Iceland | 32 | 53.7 |
🇲🇽 Mexico | 33 | 52.5 |
🇵🇹 Portugal | 34 | 49.0 |
🇫🇷 France | 35 | 48.7 |
🇵🇱 Poland | 36 | 45.7 |
🇮🇹 Italy | 37 | 44.6 |
Costa Rica joined the OECD in 2021 and was not included in the ranking due to data availability.
For the eighth year in a row, Estonia has the most competitive taxes. The country has a 20% corporate tax that only applies to profits when they are distributed to shareholders, and property tax that only applies to the land value. Switzerland, one of the world’s biggest tax havens, ranks fourth. It boasts a low, broad-based consumption tax of 7.7% and an individual income tax that partially excludes capital gains from taxation.
Meanwhile, the U.S. falls in the middle of the pack for international tax competitiveness. It allows for full expensing for business investments in machinery. However, a weakness is that the states’ sales taxes apply to only a third of the potential tax base on average. This is largely due to the fact that most personal services are exempt from sales tax.
Italy has the least competitive taxes. The country has a wealth tax on financial assets and real estate assets held abroad, and a financial transaction tax on assets when they are sold. Not only that, it takes businesses an estimated 169 hours to comply with the individual income tax.
Balancing Budget and Competition
While many factors contribute to economic performance, tax structure does play a role. Governments face the task of collecting sufficient revenue to meet their budgetary requirements, while also maximizing their international tax competitiveness. These tax structures are constantly evolving.
Starting in 2023, 137 countries—including Ireland—have agreed to a global minimum tax rate of 15% on large multinational firms. The agreement aims to stop a “race to the bottom” on corporate taxation in order to attract foreign investment. Notably, the OECD estimates this could raise $150 billion in additional global tax revenues every year.
