My, What Pretty Taxes You Have


We live in a world where everything, from consumer goods to physical attributes, are rated, ranked, and compared. Professors can be rated, cars can be ranked, and insurance can be compared online. If you are in junior high, you might rank the attractiveness of your peers. If you are two German economics professors, you would rank the attractiveness of 100 different countries' corporate tax systems, naturally.

The economists’ paper, "Measuring Tax Attractiveness Across Countries," develops a new measure, which they call the Tax Attractiveness Index. It details the attractiveness of a nation's environment and planning opportunities as they relate to taxes. The professors identified 16 relevant components of corporate tax systems. They started with obvious factors like statutory tax rates, taxation of dividends and capital gains, and withholding taxes. Then they added more esoteric factors like group taxation regime, loss offset provisions, double tax treaty networks, thin capitalization rules, and controlled foreign company rules. They then developed methods to quantify each factor to give each country a total score and yield the final rankings. Doesn’t sound nearly as fun as identifying the top five Ben & Jerry’s ice cream flavors, does it?

So, what do the results show? Which countries would grab your attention in your eighth grade homeroom? Well, not surprisingly, Caribbean tax havens like Bermuda and the Bahamas (tied for #1), the Cayman Islands (#3), and British Virgin islands (#4), ranked highest. European nations also fared well, especially European Union countries benefiting from the Parent-Subsidiary Directive and Interest and Royalty Directive abolishing intra-EU withholding taxes.

So how did the U.S. do? Well, if the U.S. were a Ben & Jerry’s ice cream flavor, it’d be sent to the Flavor Graveyard in Waterbury, Vermont. The U.S. scored 0.2342 out of a possible 1.000, which places the U.S. 94th out of 100 countries. It trails Egypt, Japan, and Zimbabwe, but is ahead of the Philippines, Indonesia, Peru, South Korea, Venezuela, and last-place Argentina.

While we all know looks shouldn’t matter, being attractive when it comes to a country’s tax environment plays an influential role in how both corporations and individuals develop their financial and tax strategies, which can affect consumers in important ways. Perhaps a makeover is in order to perform better in the next Tax Beauty Pageant.