Which country imposes the highest taxes on corporations?

Hard to say. Assessing the relative tax competitiveness of different countries is an extraordinarily tricky task, and I’m always amazed at how often people — even people who should know better — try to sweep the difficulties under the rug of statutory maximum rates.

U.S. senators Ron Wyden (D-OR) and Judd Gregg (R-NH), for example, in support of their Bipartisan Tax Fairness and Simplification Act, baldly state that “currently, U.S. corporations pay the second highest tax rate among industrialized countries.” And they offer a chart of OECD income tax rates showing the United States as the highest of the lot apart from Japan.

Well, yes, but … What about tax credits? How do those work in each country? What about employment taxes? Property taxes? Capital taxes?

KPMG this week released a study (download here as a pdf file) that attempts to give a rounder picture of ten OECD nations. The methodology is ingenious: The audit firm looked at particular cities within each country so as to capture local as well as regional and national taxes, and it examined a wide range of components of total tax cost, including sales, property, and labor-based taxes. And since some taxes and credits impact different industries in different ways — an R&D credit may be crucial for a manufacturer, for example, but irrelevant to a services firm — KPMG used a few different business models.

The results put the United States roughly in the middle of the pack, as the sixth most competitive country in this rather small sample. I won’t reveal the most competitive nation — it’s kind of surprising — but here are the “taxingest” top three, from least to most taxing:

Italy, Japan, and … France.

No huge surprises there, true. I’ve hammered on Italy and France in the past (here and here). But it’s very revealing that Japan, so close to the U.S. in the OECD statutory rate charts, actually imposes a tax burden 38 percent greater than the United States’. ###