France in last position in the tax competitiveness rankings 2022 (EN/FR)
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1. INTRODUCTION
"If we continue with tax competition, in ten or twenty years there will be no corporate income tax." These words of economist Thomas Picketty perfectly reflect the issues at stake in the Tax Foundation's ranking on tax attractiveness. Indeed, there is a tax competition between countries that favors a "race to the bottom" phenomenon that tends to reduce corporate tax rates worldwide. However, tax competition is not limited to the simple reduction of tax rates because there are other ways for countries to compete. The stakes of a country's tax attractiveness are twofold. An attractive tax framework attracts foreign investment and provides a competitive advantage for domestic companies.
In the European Union, tax competition is limited by the broad economic freedoms of the single market. Thus, a European Union state that proposes a measure that is too favorable to certain taxpayers, whether national or not, could be sanctioned based on state aid to avoid distortion of the European Union market.
It is with these issues in mind that we should study the Tax Foundation's tax attractiveness ranking. The Tax Foundation is a think tank founded in 1937 with the aim of "monitoring the tax and spending policies of governments". Thus, this organization aims to guide governments and taxpayers in assessing the attractiveness and efficiency of their tax and budgetary systems.
For this study, the Tax Foundation publishes each year a comparative ranking of the taxation of the 38 member countries of the OECD based on an International Tax Competitiveness Index (ITCI), which takes into account some 40 criteria.
Source : Tax Foundation - INTERNATIONAL TAX COMPETITIVENESS INDEX 2022
2. THE LOW TAX ATTRACTIVENESS OF FRANCE
Source: Tax Foundation - INTERNATIONAL TAX COMPETITIVENESS INDEX 2022
For the second year in a row, France is ranked last in the global tax competitiveness index. Despite this poor result, France is considered by the Tax Foundation as attractive for (i) the decrease of its corporate tax rate and (ii) the number of international tax treaties concluded which amount to 122. These international tax treaties allow states to share taxing rights and thus avoid or reduce certain double taxation.
On the contrary, France has been singled out for its heavy taxation of real estate assets for both individuals and French companies. Finally, the Tax Foundation denounces the maximum marginal income tax bracket which exceeds 45%. According to the foundation, this is one of the highest percentages in the OECD.
In comparison, Estonia, first in the ranking, is rewarded for its attractive tax framework for companies. For example, corporate tax applies only to income distributed by companies, the value-added tax regime is simple and taxes on real estate assets apply only to the value of the land.
3. A QUESTIONABLE RANKING CONSTRUCTION METHOD
It is worth looking at the construction of the ranking by the Tax Foundation.
The ITCI index aims to provide an overview of the comparison of tax legislation in developed countries that are members of the OECD. It only takes into account the construction of tax models without any consideration of their budgetary impact in the countries concerned. The ITCI index considers:
- corporate income tax ;
- personal income tax
- value-added tax;
- property taxes; and
- treatment of foreign profits.
Source: Tax Foundation - INTERNATIONAL TAX COMPETITIVENESS INDEX 2022
The construction of the ranking is not only based on the level of tax rates, but also on the structure of taxes.
However, there are several elements that qualify the findings of this ranking.
First, it is complicated to study the tax competitiveness of a country without considering the social contributions that are added to taxes, especially the budgetary effects on the public finances of the States. In the same vein, social benefits and the level of government spending on the development of public goods should have a place in this ranking. Indeed, good budgetary management requires resources to finance the actions of the state.
Secondly, one wonders why the ranking is limited to OECD countries only, when taxation should be considered in an international framework, as shown by the evaluation in the ITCI of the network of international tax treaties of countries.
Finally, it is surprising to note the weighting that the ITCI gives to the tax rate, without considering the base used by each country to tax income. For example, the attractiveness of corporate taxation cannot be measured by a simple tax rate, and must take into account the amount of income subject to tax.