The Tax Foundation has published its annual International Tax Competitiveness Index. Countries are ranked by competitiveness in respect of specific aspects of their tax regime. The index also provides an "overall" ranking which Estonia continues to lead:
|Ranking (2019)||Country||Movement||2018 Ranking|
The rate of corporation tax is only one of many factors taken into account in this survey, although the authors point out that countries with a higher rate (such as France) tend to score lower overall than countries with a lower rate (such as the UK and Ireland).
- Most of the jurisdictions surveyed adopt a territorial tax regime, exempting from corporate income tax at least 95% of dividend income and capital gains arising on the disposal of shares in a subsidiary. One notable exception is Ireland, where dividends received are subject to tax. Ireland does, however, give credit for underlying tax which, when combined with its low corporate tax rate (12.5%), means that, in many cases, this will not represent a tax cost, but merely adds a degree of complexity.
- The US’s improvement in the rankings since 2017 (when it was ranked 28th) reflects its move towards a territorial tax regime, although it is still marked down for complexity, high income tax rates and a very significant property tax burden - and for only having a partly territorial system.
- The survey marks down jurisdictions that provide specific tax incentives such as patent boxes, because the authors believe that these distort economic decisions.
- The survey also marks down jurisdictions that apply income tax on individuals at high marginal rates, because the authors believe this can affect employee behaviour – for example, by discouraging individuals from working an extra hour, if this were to push them into the next tax bracket.
- Luxembourg, Belgium, the Netherlands and Ireland all fall in the rankings, presumably because the implementation of ATAD throughout the EU has eliminated some of the advantages they previously had over other EU states. It is interesting to note, for example, that Switzerland is now the only OECD country that does not have a CFC regime.
- The UK is criticised for its very high (38.1%) top rate of income tax on dividend income, on the basis that this has an adverse effect on the cost of investment. At 51%, Ireland has the highest dividend tax rate in the OECD, where the average rate is 24%.
- The authors mark down countries such as the UK, Spain and Switzerland for their complicated property tax regimes, pointing out that if the tax is applied not just to the land but also to buildings, the taxes discourage investment and can distort business location decisions.
- Some of the scoring is difficult to understand. For example, the Netherlands is ranked above the UK for withholding taxes, despite the fact that the Dutch withholding tax on dividends is often a major hurdle for structuring under a Dutch holding company, whereas the UK does not impose a dividend withholding tax.
One interesting message from the survey is the degree to which tax regimes are moving closer together - particularly within the EU. It is perhaps not surprising that the differentiating factors (for tax purposes) are now more likely to be tax rates, withholding taxes and tax treaty protections, rather than a general perception that tax regimes are more or less benign.
Some of these points as well as the ranking of the UK are also discussed in my Viewpoint video.
The survey also marks down jurisdictions that apply income tax on individuals at high marginal rates, because the authors believe this can affect employee behaviour