Monday, June 20, 2011

20/06/2011: Europe's Corporate Tax Rates

The Institute for International and European Affairs provided a comprehensive list of EU member states' effective corporate tax rates - here - with a handy graphic depicting various states as either highest or lowest in terms of their corporate tax rates in a continuous color coded scheme.

Statistically-speaking, the cool graphic is slightly the case of 'more design, than substance' as it does not provide analysis for what constitutes a 'high' or 'low' rate. Below, I provide a chart based on IIEA's data with specified boundaries for cut-offs for the tax rate categories. These bands are based on the +/- 1/2 of STDEV and +/- 1 STDEV from the mean. Please note that the parameters are:
  • Mean (EU-wide less Malta) = 12.55%
  • Mean (Euro area) = 13.88%
  • Median (EU-wide) = 12.55%
  • STDEV = 6.40

For the sake of an argument: Ireland is just below the EU average and is firmly in the 'Average' tax rates category. France and Denmark are firmly in the 'Low' tax rates category and Belgium and Lux are in 'Very Low' category. Ireland's 'neighborhood' in terms of plain statistics, includes: Austria, Portugal, Greece and Cyprus.

So, statistically, Irish effective corporate tax rate is indistinguishable from EU Average and from Euro Area Average. I'd say: "Bugger-off, Sarko!"


Jack Costello said...

Nice table alright, and I agree that we should be telling Sarkozy et al. to 'oublier ca' in relation to our corporate tax rate. However, as I understand it the French rate of 8.2% applies only under very specific circumstances. According to Ronan Lyons, the PwC methodology considered a company which 'produces ceramic flowerpots at a gross profit margin of 20%, is domestically owned, does not trade internationally and operates out of the country’s largest city.'

Dr. Constantin Gurdgiev said...

Jack, the methodology is clearly explained in the link provided:

This is not only PWC-based data, it is World Bank provided data and encompasses general business survey respondents. Flower pots are referenced only as an example of the type of the company (albeit language used in the description is suggestive that these are exclusively 'flower pots' producers).

In other words, this is as good of data as it gets. Limited - yes. limited to what Ronan suggested - no.

Companies trading internationally face even lower effective corporate profits as they can avail of transfer pricing and other tax optimization measures.

Hope this explains.

Jack Costello said...

It sure does, thanks. In any case, I think that whatever the supposed or effective corporate tax rate of country x should have no bearing whatsoever on the tax rate of country y.

Tax Questions Answered said...

Wonderful blog. Thanks for posting.