Which European country has the most competitive tax system?

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Estonia has the most competitive tax system in Europe, the UK and Germany are making progress while Italy is still struggling, says the Tax Foundation in a new study.

In a report published on Monday, this US-based think tank cites the 20% rates Tallinn applies to business and personal income, as well as a land tax that takes into account the value of the land rather than the investmentto award the Baltic nation first place in the world for the eleventh consecutive year.

“Capital is highly mobile. Companies can choose to invest in any country in the world to find the highest rate of return”says the report, which adds that competitive and neutral tax codes promote sustainable growth.

Supporting studies, report says corporate tax is most damaging to economyalthough other sources of tax revenue – such as sales or consumption taxes – may hit poor people disproportionately.

The Czech Republic fell three places in the annual ranking after increasing its corporate tax rate from 19% to 21%, but Germany and the UK made the European podium for supporting business investment in equipment.

Italy’s tax code is considered by the study to be the least competitive in Europe, just behind France. Rome is criticized for its “multiple distortions of property taxes” and its particularly reduced VAT base.

Standardize business taxation to limit competition

These announcements come as most European countries are striving to revive their economies, but also to restore their public finances, damaged first by the COVID-19 pandemic, then by the energy crisis.

The French Prime Minister, Michel Barnier recently announced that he would raise billions by increasing taxes on big businesses and wealthy individualsin order to reduce his country’s deficit – one of the highest in the Union – in accordance with EU rules.

There are growing concerns about competition between countries to attract businesses through taxation in a world where digital companies can often easily move their operations.

Developed countries united within the Organization for Economic Co-operation and Development (OECD) have already agreed that large companies should be subject to a minimum tax rate of 15% on their profits.

The EU’s highest court also recently ruled that the tax advantage enjoyed by US company Apple in Ireland – which allowed it to pay rates of around 0.005% – amounted to an illegal subsidy.

Despite its low corporate tax rate and reputation as a business-friendly country, high taxes on income and dividends put Ireland at the bottom of the Tax Foundation table.