The information required for the calculation of corporate effective tax rates was provided by country representatives of members of the Inclusive Framework on BEPS. For EU member countries the information for 2017 was provided by the European Commission. Tax rates of OECD jurisdictions are from Table II.1 Statutory Corporate Income Tax Rates of the OECD Tax Database.
Key concepts and methodology
Forward-looking effective tax rates (ETRs) are synthetic tax policy indicators calculated on the basis of a prospective, hypothetical investment project. Unlike backward-looking ETRs, they do not incorporate any information about firms' actual tax payments.
The OECD methodology has been described in detail in the OECD Taxation Working Paper No. 38 (Hanappi, 2018), building on the theoretical model developed by Devereux and Griffith (1999, 2003). Further methodological information is available in the explanatory annex.
The methodology builds on the following key concepts:
As can be seen from the definition of the cost of capital, the tax inclusive EMTR is not defined if the cost of capital approaches zero. In cases where this happens, e.g., due to interactions between high inflation, generous tax incentives or interest deductibility, the respective EMTR is recorded as a missing observation.
Asset categories and tax provisions covered
The calculations build on a comprehensive coverage of jurisdiction-specific tax rules pertaining to four quantitatively relevant asset categories:
Non-residential structures: manufacturing plants, large engineering structures, office or commercial buildings.
Tangible assets: (1) road transport vehicles, (2) air, rail or water transport vehicles, (3) computer hardware, (4) equipment and (5) industrial machinery.
Acquired intangible assets: (1) acquired software.
Inventories.
The following corporate tax provisions have been covered:
The composite ETRs reported in this database are constructed in three steps. First, ETRs are calculated separately for each jurisdiction, asset category and source of finance (debt and equity); while the debt-finance case accounts for interest deductibility, jurisdiction-specific limitations to interest deductibility have not been covered in this edition. Second, an unweighted average over the asset categories is taken, separately for both sources of finance. Third, the composite ETRs are obtained as a weighted average between equity- and debt-financed investments, applying a weight of 65% equity and 35% debt finance.
Macroeconomic Scenarios
The two main macroeconomic parameters, inflation and interest rates, interact with the effects of the tax system in various ways and can thus have significant effects on the ETRs.
The database contains ETR results for two different macroeconomic scenarios. In the first scenario interest and inflation rates are held constant. In the LOW scenario real interest is 3% and inflation is 1%. The second scenario uses country-specific (CS) macroeconomic parameters. The corresponding country-specific real interest and inflation rates are listed in the explanatory annex. While the former approach addresses the question how differences in tax systems compare across jurisdictions holding other factors constant, the latter approach gives better indications on the tax effects on investment incentives in a specific country at a specific point in time.
The information required for the calculation of corporate effective tax rates was provided by country representatives of members of the Inclusive Framework on BEPS. For EU member countries the information for 2017 was provided by the European Commission. Tax rates of OECD jurisdictions are from Table II.1 Statutory Corporate Income Tax Rates of the OECD Tax Database.
Key concepts and methodology
Forward-looking effective tax rates (ETRs) are synthetic tax policy indicators calculated on the basis of a prospective, hypothetical investment project. Unlike backward-looking ETRs, they do not incorporate any information about firms' actual tax payments.
The OECD methodology has been described in detail in the OECD Taxation Working Paper No. 38 (Hanappi, 2018), building on the theoretical model developed by Devereux and Griffith (1999, 2003). Further methodological information is available in the explanatory annex.
The methodology builds on the following key concepts:
As can be seen from the definition of the cost of capital, the tax inclusive EMTR is not defined if the cost of capital approaches zero. In cases where this happens, e.g., due to interactions between high inflation, generous tax incentives or interest deductibility, the respective EMTR is recorded as a missing observation.
Asset categories and tax provisions covered
The calculations build on a comprehensive coverage of jurisdiction-specific tax rules pertaining to four quantitatively relevant asset categories:
Non-residential structures: manufacturing plants, large engineering structures, office or commercial buildings.
Tangible assets: (1) road transport vehicles, (2) air, rail or water transport vehicles, (3) computer hardware, (4) equipment and (5) industrial machinery.
Acquired intangible assets: (1) acquired software.
Inventories.
The following corporate tax provisions have been covered:
The composite ETRs reported in this database are constructed in three steps. First, ETRs are calculated separately for each jurisdiction, asset category and source of finance (debt and equity); while the debt-finance case accounts for interest deductibility, jurisdiction-specific limitations to interest deductibility have not been covered in this edition. Second, an unweighted average over the asset categories is taken, separately for both sources of finance. Third, the composite ETRs are obtained as a weighted average between equity- and debt-financed investments, applying a weight of 65% equity and 35% debt finance.
Macroeconomic Scenarios
The two main macroeconomic parameters, inflation and interest rates, interact with the effects of the tax system in various ways and can thus have significant effects on the ETRs.
The database contains ETR results for two different macroeconomic scenarios. In the first scenario interest and inflation rates are held constant. In the LOW scenario real interest is 3% and inflation is 1%. The second scenario uses country-specific (CS) macroeconomic parameters. The corresponding country-specific real interest and inflation rates are listed in the explanatory annex. While the former approach addresses the question how differences in tax systems compare across jurisdictions holding other factors constant, the latter approach gives better indications on the tax effects on investment incentives in a specific country at a specific point in time.