Mannheim Tax Index
Tax Attractiveness in Europe
The Mannheim Tax Index is an indicator for the effective tax levels of companies, as taxation is deemed to be an important location factor. More precisely, it benchmarks countries and regions from a tax perspective, taking into account taxes on profits and invested capital as well as the most important regulations in determining the taxable base. In doing so, it provides a comprehensive picture of taxation by following two general strands: the taxation of domestic companies along with their shareholders and cross-border corporate investments. Analysing the taxation of companies is a traditional way of comparing the fiscal attractiveness of regions competing with one another internationally. It concentrates on the tax rates borne by mobile capital and mobile companies.
Dr. Daniela Steinbrenner
ZEW ExpertOur index is based on effective tax burdens for two reasons: They are more relevant for investment decisions than nominal tax rates, and their aggregate level makes them directly comparable across locations. Looking at these effective tax rates over time provides intuition about common trends in tax competition and possible interdependencies between locations.
GERMANY'S EFFECTIVE TAX BURDEN IS 10 PERCENTAGE POINTS ABOVE THE EUROPEAN AVERAGE
The 2021 agreement on global minimum tax has had an impact on international tax competition. At the moment, a clear “race to the bottom” can no longer be observed in Europe. There have been reductions in corporate tax rates in recent years, such as in France, where the tax rate was cut from 28% to 25%, or in Austria, where the tax rate was lowered from 25% to 23%. Portugal is also planning a reduction from 21% to 20%. However, these moderate adjustments do not indicate an aggressive tax policy aimed at increasing the location attractiveness at the expense of high tax revenue losses. At the same time, the entry into force of the EU Minimum Tax Directive has led to an increase in corporate tax rates in several Eastern European low-tax countries. Slovenia has increased its tax rate from 19% to 22%, the Czech Republic from 19% to 21%, and Estonia is planning to raise its tax rate from 20% to 22% and abolish the reduced tax rate of 14%. One of the economically strongest European countries, the United Kingdom, has also increased its tax rate from 19% to 25%. This indicates that instead of aggressive tax competition, European countries are establishing a moderate tax level of between 20% and 25%. This trend is also reflected in the effective average tax rates (EATRs) applicable in the countries mentioned, which are between 17% and 25% and thus well above the minimum tax level of 15%.
However, a different trend is emerging in the USA, one of the world's largest economic powers and a key trading partner for Germany. Despite international efforts to limit aggressive tax competition, Donald Trump's second term in office is expected to result in further far-reaching tax reforms. This is illustrated, among other things, by the USA’s withdrawal from the agreement on a global minimum tax. Already during Trump's first term in office, the “Tax Cuts and Jobs Act” reduced the effective average tax burden from 36.5% to 27.5%, which significantly strengthened the USA’s position in international tax competition. For his second term in office, Donald Trump campaigned with a reduction in the federal tax rate from 21% to 15%, the full creditability of income taxes at state level against federal tax and the direct expensing for machinery, among other things. These measures would reduce the effective average tax burden to 15.7% and strengthen the USA's position in the international tax arena even more. Despite the aggressive tax cuts of almost 20 percentage points within one decade, the global minimum tax level of 15% will not be undercut.
The USA is currently putting a strong focus on positive investment effects to compensate for the expected budget deficit in the long term. However, with drastic reductions in the effective tax burden, it is questionable whether the investment incentives will be able to outweigh the resulting long-term reduction in tax revenues. In the light of the current economic situation in Europe, which is characterised by low growth rates, inflation and strained public budgets, the European approach of reducing tax competition and stabilising the effective tax burden seems the most appropriate. The current development in Europe is also favourable for Germany. With an effective average tax burden of 28.5% in 2024, Germany is almost 10 percentage points above the EU average. Due to the increasingly established tax level of between 20% and 25%, Germany has the opportunity to regain a foothold in international tax competition by moderately adjusting the tax burden without having to accept a massive reduction in tax revenues.
Effective Tax Burdens in Country Comparison
The possibility of improving Germany's competitiveness through tax reforms was also recognised by the German government. It has set up several expert commissions to draw up proposals for improving taxation in Germany. Among other things, one of these expert commissions proposes to simplify trade tax, which could bring Germany closer to the internationally competitive tax level of 25%. As part of this trade tax reform, the deductibility of interest would be increased and the tax burden on companies would be reduced to 25% by offsetting part of the trade tax against corporate income tax. A general reduction in corporate income tax is viewed critically in the light of the global minimum tax. The proposed trade tax reform would reduce the effective average tax burden in Germany to 23.3%, bringing it back to the tax levels of France and the United Kingdom in the Mannheim Tax Index.
Devereux-Griffith Model
The calculation of the Mannheim Tax Index is based on the established investment theory approach by British economists Devereux and Griffith (1999, 2003). By taking into account several tax parameters and their effects on a hypothetical future investment, the effective tax burden of a country is calculated and tax-induced distortions in the choice of location are shown. Both the cost of capital and the effective marginal tax rate of a marginal investment, which influence the scope of investment at a specific location, as well as the average effective tax burden on a profitable investment, are calculated.
The “Model Structure” chart shows the structure of an investment and its financing. The calculation of the Mannheim Tax Index is based on a corporation in the manufacturing industry which invests in a specified combination of various assets either through itself or a foreign subsidiary. The hypothetical investment project consists in equal parts of intangible assets, industrial buildings, machinery, financial assets and inventory. Various forms of financing are also taken into account. Financial sources in order of their weighting are retained earnings, borrowed capital and new equity capital.
Data
Please cite the data as:
Spengel, C., Heckemeyer, J., Nicolay, K., Gaul, J., Gundert, H., Spix, J., Steinbrenner, D., Weck, S., Wickel, S. (2025), Mannheim Tax Index Update 2024 - Effective Tax Levels using the Devereux/Griffith Methodology, MannheimTaxation Project, Mannheim.
Access to Data:
The Mannheim Tax Index calculates effective tax rates for 27 EU countries as well as the United Kingdom, Switzerland, Norway, North Macedonia, Turkey, the USA, Canada and Japan for the period from 1998 to 2024. In addition to the company level, the shareholder level and cross-border bilateral investments are also covered. The information is available for download:
