Comparison of cross-border tax systems in Europe, 2021

Today’s map examines the ranking of European OECD countries in cross-border tax rules and is the last in our series examining each of the five components of our International tax competitiveness index (ITCI). Cross-border tax rules define how income earned abroad and by foreign entities is taxed domestically, making it an important part of each country’s tax code.

the ITCIThe component on cross-border tax rules compares various aspects of cross-border tax systems in OECD countries, namely territoriality, withholding taxes, tax treaties and cross-border tax regulations such as the rules on controlled foreign companies ( SEC) and thin capitalization rules.

Territoriality defines the extent to which dividends and capital gains earned abroad are included in the national tax base. Tax treaties align many tax laws between two countries and attempt to reduce double taxation, in part by reducing or eliminating withholding taxes on dividends, interest and royalties received by foreign individuals and businesses. The CFC and thin capitalization rules aim to prevent multinational companies from minimizing their tax liability through base erosion and profit shifting.

The UK cross-border tax system ranks first among OECD countries. Like most OECD countries, the UK operates a territorial tax system, fully exempting foreign dividends and capital gains from domestic tax. The UK has the largest network of tax treaties in the OECD, with around 130 countries. As a result, under the tax treaty, foreign entities from these countries are not subject to 20% withholding tax on interest and royalties received in the UK or pay a reduced rate. There is no withholding tax on dividends. The UK has relatively strict CFC rules and thin capitalization rules.

Among the European OECD countries, Slovakia has the least competitive cross-border tax system (Chile ranks last in the OECD). While Slovakia excludes dividends earned abroad and capital gains from its national tax base, it levies a relatively high withholding tax of 35% on dividends (interest and royalties are subject to a 19% withholding tax). Slovakia’s tax treaty network consists of around 70 countries, and its CFC and thin capitalization rules are relatively strict.

Click here to view an interactive version of the ranking of cross-border tax rules for OECD countries, then click on your country for more information on the strengths and weaknesses of its tax system and how it compares to the top and bottom five OECD countries.

To see if the ranking of your country’s cross-border tax rules has improved in recent years, check the table below. To learn more about how we determined these rankings, read our full methodology here.

Cross-border tax rule component of the International tax competitiveness index between 2019 and 2021 (for all OECD countries)
OECD countries Ranking 2019 Ranking 2020 Ranking 2021 Change from 2020 to 2021
Australia (AU) 25 24 24 0
Austria (AT) 5 5 seven -2
Belgium (BE) 9 18 18 0
Canada (CA) 16 16 16 0
Chile (CL) 37 37 37 0
Colombia (CO) 36 35 35 0
Czech Republic (CZ) 12 12 12 0
Denmark (DK) 28 30 30 0
Estonia (EE) 15 15 15 0
Finland (FI) 21 21 21 0
France (FR) 17 13 13 0
Germany (DE) seven seven 6 1
Greece (GR) 29 25 25 0
Hungary (HU) 4 4 4 0
Iceland (IS) 30 31 31 0
Ireland (IE) 19 19 19 0
Israel (IL) 13 ten ten 0
Italy (IT) 26 27 26 1
Japan (JP) 20 26 27 -1
Korea (KR) 33 33 33 0
Latvia (LV) ten 9 9 0
Lithuania (LT) 24 23 23 0
Luxembourg (LU) 6 6 5 1
Mexico (MX) 35 36 36 0
Netherlands (NL) 2 3 3 0
New Zealand (NZ) 23 22 22 0
Norway (NO) 11 11 11 0
Poland (PL) 27 29 29 0
Portugal (PT) 31 28 28 0
Slovak Republic (SK) 34 34 34 0
Slovenia (SI) 22 20 20 0
Spain (ES) 18 17 17 0
Sweden (SE) 14 14 14 0
Switzerland (CH) 3 2 2 0
Turkey (TR) 8 8 8 0
United Kingdom (GB) 1 1 1 0

Source: International tax competitiveness index 2021.

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