Measuring Tax Attractiveness Across Countries
Quantitative Reserach in Taxation, Discussion Paper No. 143
60 Pages Posted: 18 Dec 2013
Date Written: June 9, 2013
This paper develops a new tax measure – the Tax Attractiveness Index – reflecting the attractiveness of a country’s tax environment and the tax planning opportunities that are offered. Specifically, the Tax Attractiveness Index covers 16 different components of real-world tax systems, such as the statutory tax rate, the taxation of dividends and capital gains, withholding taxes, the existence of a group taxation regime, loss offset provision, the double tax treaty network, thin capitalization rules, and controlled foreign company (CFC) rules. We develop methods to quantify each tax factor. The Tax Attractiveness Index is constructed for 100 countries over the 2005 to 2009 period. Regional clusters in the index as well as in the application of certain tax rules can be observed. The evaluation of individual countries based on the index corresponds – but is not totally identical – with the OECD’s 'black' respectively 'grey' list. By comparing the Tax Attractiveness Index with the statutory tax rate, we reveal that even high tax countries offer favorable tax conditions. Hence, the statutory tax rate is not a suitable proxy for a country’s tax climate in any case since countries may set other incentives to attract firms and investments.
Keywords: tax measure, tax attractiveness, tax planning, multinational company
JEL Classification: H25, H26, H71
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