Editor’s Note: According to the International Tax Competitiveness Index 2021 published by the Tax Foundation, one of the nation’s leading independent tax policy think tanks, the structure of a country’s tax code is one of the determining factors of its economic performance. A well-structured tax code is easy for taxpayers to comply with and can promote economic development while raising sufficient revenue for a government’s priorities. In contrast, poorly structured tax systems can be costly, distort economic decision-making, and harm domestic economies. To better understand the variety of approaches to taxation among Organisation for Economic Co-operation and Development (OECD) countries, the Tax Foundation developed the International Tax Competitiveness Index (ITCI) to allow for relative comparisons of OECD countries’ tax systems with respect to competitiveness and neutrality. This index may be beneficial for business professionals in the field of cybersecurity, information governance, and legal discovery as they consider international expansion and targeted acquisitions.
Founded as an Estonian company in 2020, ComplexDiscovery OÜ operates under the Estonian tax code. As an Estonian company, ComplexDiscovery OÜ offers business partners and acquiring companies established access into a European Union country with one of the most competitive tax systems in the world.
Backgrounder: Based in Washington, DC, The Tax Foundation is the nation’s leading independent tax policy nonprofit. Since 1937, principled research, insightful analysis, and engaged experts have informed smarter tax policy at the federal, state, and global levels. For over 80 years, their goal has remained the same: to improve lives through tax policies that lead to greater economic growth and opportunity. Additionally, based in Paris, France, and currently consisting of 38 member countries, the Organisation for Economic Co-operation and Development (OECD) is an international organization that works to build better policies for better lives. Their stated goal is to shape policies that foster prosperity, equality, opportunity, and well-being for all. It draws on 60 years of experience and insights to better prepare the world of tomorrow.
Report from the Tax Foundation by Daniel Bunn and Elke Asen*
International Tax Competitiveness Index 2021
For the eighth year in a row, Estonia has the best tax code in the OECD. Its top score is driven by four positive features of its tax system. First, it has a 20 percent tax rate on corporate income that is only applied to distributed profits. Second, it has a flat 20 percent tax on individual income that does not apply to personal dividend income. Third, its property tax applies only to the value of land, rather than to the value of real property or capital. Finally, it has a territorial tax system that exempts 100 percent of foreign profits earned by domestic corporations from domestic taxation, with few restrictions.
While Estonia’s tax system is the most competitive in the OECD, the other top countries’ tax systems receive high scores due to excellence in one or more of the major tax categories. Latvia, which recently adopted the Estonian system for corporate taxation, also has a relatively efficient system for taxing labor income. New Zealand has a relatively flat, low-rate individual income tax that also largely exempts capital gains (with a combined top rate of 33 percent), a well-structured property tax, and a broad-based value-added tax. Switzerland has a relatively low corporate tax rate (19.7 percent), a low, broad-based consumption tax, and an individual income tax that partially exempts capital gains from taxation. Luxembourg has a broad-based consumption tax and a competitive international tax system.
Italy has the least competitive tax system in the OECD. It has a wealth tax on financial assets and real estate held abroad, a financial transaction tax, and an inheritance tax. Italy also has a high compliance burden associated with its individual tax system. It takes businesses an estimated 169 hours to comply with the individual income tax. The Italian value-added tax covers less than 40 percent of final consumption, revealing both policy and enforcement gaps.
Countries that rank poorly on the ITCI often levy relatively high marginal tax rates on corporate income. The five countries at the bottom of the rankings all have higher than average corporate tax rates, except for Poland, at 19 percent. In addition, all five countries have high consumption tax rates, with rates of 20 percent or higher, except for Mexico, at 16 percent.
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