Estonia has once again topped the international tax competitiveness index compiled by the Tax Foundation, a US think tank, while the US is placed at number 30 and the UK at 14 in the rankings with France taking bottom place at number 35
For the fourth year in a row, Estonia has the best tax code in the OECD, largely down to four factors: a 20% tax rate on corporate income that is only applied to distributed profits; a flat 20% tax on individual income that does not apply to personal dividend income; property tax that applies only to the value of land, rather than to the value of real property or capital; and a territorial tax system that exempts 100% of foreign profits earned by domestic corporations from domestic taxation, with few restrictions.
In contrast, also for the fourth year in a row, France has the least competitive tax system in the OECD. It has one of the highest corporate income tax rates in the OECD (34.4%), high property taxes, an annual net wealth tax, a financial transaction tax, and an estate tax. France also has high, progressive individual income taxes that apply to both dividend and capital gains income.
The UK has moved up three places in the index this year, from 17th to 14th, largely because of the reduction in the corporation tax rate and in capital gains taxation.
The Foundation says a number of countries have reformed their tax system in recent years, highlighting the example of New Zealand, now ranked second in the table, which already had multiple competitive features, including no inheritance tax, no general capital gains tax, and no payroll taxes. Since 2010 it has cut its top marginal individual income tax rate from 38% to 33%, shifted to a greater reliance on the goods and services tax, and cut its corporate tax rate to 28% from 30%.
In contrast, the Foundation point out the US has not reduced its federal corporate income tax rate from 35% since the early 1990s. As a result, its combined federal, state, and local corporate tax rate of about 39% is significantly higher than the average rate of 25% among OECD nations. In addition, as most OECD nations have moved to a territorial tax system, the US has continued to tax the worldwide profits of its domestic corporations.
The Tax Foundation’s 2017 international tax competitiveness index is here.
Report by Pat Sweet
