Tax Foundation’s latest version of its International Tax Competitiveness Index is now out, and Estonia, for the fourth year in a row, has held firm to its top spot in the rankings.
Tax Foundation’s index was developed with the purpose of measuring “the extent to which a country’s tax system adheres to two important aspects of tax policy: competitiveness and neutrality.”
As matter of recap, Tax Foundation considers a tax code to be competitive when it “keeps marginal tax rates low,” and neutral when it “seeks to raise the most revenue with the fewest economic distortions.”
The two combine to establish a tax code that essentially “promotes sustainable economic growth and investment while raising sufficient revenue for government priorities.”
Estonia Tops Tax Foundation’s 2017 Tax Competitiveness Index
In a repeat performance, Estonia has been ranked as having the most competitive tax code among OECD countries thanks to its high scores in four major categories.
As explained by Tax Foundation’s Kyle Pomerleau, Jared Walczak and Scott A. Hodge, Estonia ranks highly as a result of the following factors: 1) “it has a 20 percent tax rate on corporate income that is only applied to distributed profits;” 2) “it has a flat 20 percent tax on individual income that does not apply to personal dividend income;” 3) “its property tax applies only to the value of land, rather than to the value of real property or capital,” and; 4) “it has a territorial tax system that exempts 100 percent of foreign profits earned by domestic corporations from domestic taxation, with few restrictions.”
Source: Tax Foundation's 2017 International Tax Competitiveness Index
* Consumption Taxes.
Other countries that continue to perform well include Latvia, Sweden, Switzerland and New Zealand.
New Zealand, for instance, benefits from “a relatively flat, low-rate individual income tax that also exempts capital gains (with a combined top rate of 33 percent), a well-structured property tax, and a broad-based value-added tax.”
Latvia, on the other hand, counts on “a relatively low corporate tax rate of 15 percent, speedy cost recovery, and a flat individual income tax.”
As expected, for now the fourth time in a row, France ranked last among OECD nations, a result facilitated by the country’s 34.4 percent corporate tax rate, alongside “high property taxes, an annual net wealth tax, a financial transaction tax, and an estate tax.”
Furthermore, the United States did not fare well as usual, entering the ranking at 30th out of 35.
The US is continuously hindered in Tax Foundation’s analysis by its failure to drop “its federal corporate income tax rate from 35 percent since the early 1990s” and the fact that it “has continued to tax the worldwide profits of its domestic corporations.”
Biggest Changes to Tax Foundation’s International Tax Competitiveness Index?
The biggest movers when compared to the 2016 edition are the Czech Republic, Ireland, Japan and Slovenia.
The Czech Republic jumped four spots in the ranking, moving from 13th to 9th thanks to amendments to “its income tax law to allow the deductibility of tax losses from the sale of shares by nonresidents,” and the fact that “compliance hours fell significantly for both corporate and individual income taxes.”
Japan also moved up in the rankings, jumping to 22nd from 26th.
As reported by Tax Foundation, Japan benefited from a drop in compliance time for all tax categories and a big expansion of its treaty network.
On the other end of the spectrum, Ireland and Slovenia were this edition’s biggest losers.
Slovenia dropped to 18th from 14th as a result of a 2 percent hike to its corporate tax rate, while Ireland fell to 16th.
To download the ranking in its entirety, please click HERE.
What are your thoughts on these rankings and your jurisdiction’s position? Let us know in the comments section.