Candice Horbacz
Over the past decade, significant improvements in national tax systems have primarily stemmed from independent legislative reforms rather than sweeping multilateral coordination initiatives, according to the latest International Tax Competitiveness Index (ITCI). Analysis of ten editions of the Index, spanning 2016 through 2025, reveals that countries achieving the most substantial enhancements did so by implementing targeted changes, such as reducing tax penalties on new investment, simplifying rate structures, broadening consumption tax bases, and clarifying cross-border rules. This contrasts with a concurrent period dominated by ambitious multilateral efforts, which, despite consuming considerable policy energy, have yielded decidedly mixed outcomes and often introduced complex, high-cost compliance burdens.
The International Tax Competitiveness Index, published by the Tax Foundation, serves as a crucial benchmark for evaluating the quality and neutrality of OECD member countries’ tax systems. It assesses 38 nations across five key categories: corporate taxes, individual taxes, consumption taxes, property taxes, and cross-border rules. The Index rewards tax regimes that demonstrate rate competitiveness, neutrality across economic activities, simplicity, and a broad tax base. Crucially, a country’s score is not solely determined by its total tax burden but significantly by how that revenue is generated. For instance, a nation relying on a broad, low-rate consumption tax scores highly, reflecting its economic neutrality, lower compliance costs, and reduced incentive for profit shifting, whereas a narrow, high-rate corporate tax with numerous carveouts fares poorly. This methodology, consistently applied to data from 2016 and 2025 for all 38 countries (including retroactive estimates for newer members like Lithuania, Costa Rica, and Colombia), isolates genuine policy changes from methodological shifts, offering a clear picture of national progress.
A Decade of Distinct National Reforms: Key Trends and Top Performers
The consistent methodology comparison reveals a clear trend: nations making deliberate, self-determined choices about their tax systems have seen tangible improvements in their ITCI rankings. These reforms, often rooted in long-standing principles of sound tax policy, prioritized enhancing domestic investment, simplifying compliance, and improving the fairness and efficiency of revenue collection.
Among the most striking overall improvers from 2016 to 2025 are Greece, which ascended an impressive 12 places (from 35th to 23rd), the United States, climbing 10 places (from 25th to 15th), and Hungary, Canada, and Mexico, each gaining 5 places. These successes underscore the efficacy of national legislatures in tailoring reforms to their specific economic contexts and policy objectives. These countries did not await global consensus but acted unilaterally, drawing lessons from international best practices and their own experiences.
Case Studies in National Tax Innovation and Reform
The success stories of the past decade illustrate diverse approaches to enhancing tax competitiveness, often driven by a combination of structural adjustments, rate changes, and improved administration.
I. Corporate Structure and Rates: Latvia and Hungary Lead the Way
Latvia
Latvia exemplifies structural innovation in corporate taxation. Already a strong performer in the Index, Latvia further solidified its position by adopting a distributed profits tax in 2018. This groundbreaking reform eliminates corporate tax on retained earnings, levying tax only when profits are distributed to shareholders. This system fosters a clean and direct incentive structure, removing the inherent tax penalty on corporate saving and capital accumulation common in traditional corporate income tax regimes. As a result, Latvia surged from third to first place in the corporate subscore.
The distributed profits tax, pioneered by Estonia nearly two decades prior, demonstrates successful policy diffusion without multilateral mandates. Latvia observed Estonia’s long-term experiment, recognized its efficacy, and adapted it. This approach highlights the value of national experimentation, as such a tax design falls outside the mainstream corporate tax models typically assumed by multilateral standard-setting bodies. The potential impact of the global minimum tax regime on this model, while a concern, is somewhat mitigated by Latvia’s 20 percent rate, making top-up taxes less frequent.
Beyond corporate reform, Latvia also saw a dramatic improvement in its consumption tax ranking, moving from 33rd to 20th. This notable gain is largely attributed to enhanced tax administration and compliance measures. The OECD and Latvia’s State Revenue Service point to a package of initiatives, including automatic information exchange on digital platform sellers, restrictions on cash payments in construction, reverse-charge procedures, and the strategic use of data and digital technologies for targeted inspections, along with innovative tools like a receipt lottery, as key drivers.
Hungary
Hungary pursued a different yet equally effective path to corporate competitiveness, primarily through rate reductions. With a statutory corporate income tax rate of 9 percent, Hungary boasts the lowest in the European Union, propelling its corporate subscore from 19th to 4th place. While this rate is highly competitive, it comes with nuances. The local iparűzési adó (HIPA), a local business tax, can add up to 2 percent and is imposed on an unusual base that resembles a gross receipts tax, creating some distortions. Furthermore, the advent of Pillar Two’s global minimum tax has added complexity, requiring Hungary to introduce a qualified domestic minimum top-up tax and income inclusion rule, though HIPA and innovation contributions are hoped to be treated as covered taxes.
Hungary’s competitive corporate tax regime is complemented by a flat individual income tax, which saw a rate cut from 16 percent to 15 percent, improving its ranking from 9th to 3rd. Overall, Hungary’s tax code is notable for its competitiveness and relative simplicity, contributing to its rise from 14th to 9th in the overall ITCI. This strategy demonstrates a clear policy choice: leveraging robust consumption tax revenues to create fiscal space for lower and simpler income taxes, even if some elements, like the HIPA or the reklámadó (a digital services tax focused on advertising), introduce specific complexities.
II. Investment Incentives: The United States and Canada Drive Capital Formation
The United States
The United States recorded one of the most significant subscore improvements in the entire dataset, with its corporate tax ranking soaring from 36th to 9th—a remarkable gain of 27 places. This transformation, which also lifted its overall ranking from 25th to 15th, was predominantly driven by the Tax Cuts and Jobs Act (TCJA) of 2017.
Two provisions of the TCJA were particularly impactful. First, the reduction of the statutory corporate rate from 35 percent to 21 percent eliminated what had become an extraordinary outlier among developed economies. The previous high rate disincentivized domestic investment and fostered pressure for corporate inversions and profit shifting. The rate cut directly addressed both these issues, making the U.S. more competitive globally. Second, the introduction of full expensing for short-lived capital assets under Section 168(k) dramatically improved the after-tax return on domestic capital formation. By allowing businesses to immediately deduct the full cost of certain investments, expensing removes a significant distortion inherent in standard corporate income taxes, thereby encouraging greater investment.
While the TCJA also introduced new international provisions like Global Intangible Low-Taxed Income (GILTI), Foreign-Derived Intangible Income (FDII), and Base Erosion and Anti-abuse Tax (BEAT), their impact on the ITCI ranking improvement is less direct. These provisions replaced a highly distortionary prior regime, representing an improvement, but also came with their own set of complexities and criticisms. Nevertheless, the core corporate rate reduction and full expensing achieved long-sought goals in U.S. corporate tax reform.
Canada
Canada also made significant strides in improving cost recovery for businesses. The accelerated investment incentive, introduced in 2018, enhanced the present value of capital cost allowance deductions, allowing larger first-year deductions. For specific sectors, such as manufacturing, processing, and clean energy investments, full expensing was permitted. This robust reform significantly boosts Canada’s attractiveness for investment and is an area policymakers are encouraged to further expand in scope and duration. These measures contributed to Canada’s overall ranking improvement from 18th to 13th in the Index. The broader Anglosphere has seen similar positive developments, with the United Kingdom also improving significantly on cost recovery during this period, though some other policy decisions offset these gains.
III. Individual Tax Simplification: Greece and Mexico Ease the Burden
Greece
Greece stands out as the decade’s most dramatic overall improver, rising 12 places to 23rd. Even more striking is its individual income tax ranking, which jumped from 20th to 4th—a 16-place gain, the largest single-subscore improvement of any country. Its corporate ranking also saw substantial improvement, moving from 29th to 16th.
The primary catalyst for Greece’s individual tax improvement was the elimination of the solidarity surcharge. This emergency levy, imposed during the early 2010s sovereign debt crisis, had become a persistent feature of the tax code, raising marginal rates on labor income without clear contemporary justification. As Greece’s fiscal situation stabilized, a deliberate effort was made to enhance tax competitiveness. The surcharge was phased out and fully eliminated by 2023, reducing marginal tax rates on labor, boosting work incentives, and streamlining a complex multi-layer rate structure. Greece’s experience offers a crucial lesson: crisis-era tax complexities, even those that become entrenched, can be successfully unwound when political will aligns with fiscal improvement.
Mexico
Mexico also demonstrated strong progress, improving five places overall from 23rd to 18th. The primary driver was its individual income tax system, which climbed from 27th to 14th, a gain of 13 places. This improvement reflects two reinforcing developments. In 2022, Mexico introduced the Régimen Simplificado de Confianza (RESICO), a new simplified regime for small businesses and self-employed workers featuring a flat-rate structure. While it possesses some gross receipts tax characteristics, which can be distortionary for business income, RESICO proved highly effective in formalizing a large segment of the working population previously operating outside the formal tax system.
Complementing this structural change, Mexico’s mandatory electronic invoicing system (CFDI) creates a real-time audit trail for business transactions. This system has demonstrably improved consumption tax collections, as measured by the Index, and likely enhanced the general transparency and legibility of Mexico’s economy for income tax collection, particularly in conjunction with RESICO. Mexico’s consumption tax ranking, though only modestly improved (from 13th to 12th), has consistently been a source of competitive strength, much like Hungary’s, by providing robust, broad-based revenues that reduce pressure on other parts of the tax code.
IV. Consumption Tax: New Zealand Sets a Global Standard
New Zealand
While New Zealand experienced a slight dip in its overall ranking (from 2nd to 3rd), its trajectory in consumption taxes is exemplary, moving from 6th to 1st place. New Zealand’s Goods and Services Tax (GST) has long been regarded as a global model for consumption tax design. It is characterized by an exceptionally broad base, a single rate of 15 percent, and one of the highest Value-Added Tax (VAT) revenue ratios in the OECD. This efficiency stems from minimal exemptions that typically erode the tax base in other countries. Many nations reduce or eliminate VAT on "essential" items like health or groceries, which, while well-intentioned, reduces revenue and creates administrative complexities and litigation risks. New Zealand wisely avoids this dynamic, opting for a broad, uniform application.
The decisive factor in New Zealand’s climb to the top of the consumption tax category was its systematic and sensible extension of the GST model to the modern platform economy. Unlike many countries that pursued dedicated digital services taxes (a path New Zealand briefly considered before dropping it), New Zealand integrated digital services into its existing GST regime through clear guidelines on remote services. This approach demonstrates a crucial lesson: rather than creating new, often complex and distortionary, destination-based taxes for digital services, it is more effective to adapt existing, well-designed destination-based tax systems to include them.
V. Cross-Border Rules: Switzerland Streamlines for Competitiveness
Switzerland
Switzerland achieved one of the most dramatic single-subscore improvements, rising from 7th to 1st in cross-border rules following the 2020 implementation of the Federal Act on Tax Reform and AHV Financing (STAF). This reform also contributed to Switzerland’s overall ranking improvement from 6th to 4th.
For decades, Switzerland’s system was complex, with varying cantonal and federal rates and preferential cantonal regimes for certain holding, domiciliary, and mixed companies with primarily foreign-source income. These preferential regimes, while attractive, drew significant criticism from the European Union and ultimately became politically unsustainable. STAF addressed these concerns by simplifying the system and harmonizing it with international standards, while carefully retaining Switzerland’s competitive edge.
The result was that Switzerland’s already robust cross-border architecture—characterized by no withholding tax on most royalties, limited withholding on cross-border interest, a broad participation exemption, an absence of controlled foreign corporation rules, and one of the world’s most extensive treaty networks—became universally available and simpler than ever. Switzerland’s deliberate choice to streamline its structure, even under international pressure, pushed it to the top of this subcategory. This case highlights that while international pressure can be a catalyst, national policymakers retain the agency to respond in ways that prioritize competitiveness, growth, and simplicity—objectives often undervalued in multilateral forums.
The Multilateral Record in Context: Achievements and Overreaches
Parallel to these national reforms, the past decade also saw an unprecedented surge in multilateral tax coordination efforts, primarily spearheaded by the OECD’s Base Erosion and Profit Shifting (BEPS) project and its successor, the Two-Pillar Solution.
What Coordination Has Gotten Right
The initial phases of the BEPS project (often referred to as BEPS 1.0) genuinely addressed critical problems in international taxation. Its most defensible actions targeted real arbitrage situations where disparities between national tax rules allowed multinational enterprises to achieve tax-free income unintended by any jurisdiction. Hybrid mismatch arrangements, for instance, where an entity is treated differently under two countries’ laws, leading to deductions in one without corresponding income inclusion in another, were a clear example requiring coordinated solutions. Similarly, tightening permanent establishment definitions prevented multinationals from conducting substantial economic activity in a jurisdiction while claiming no taxable presence.
Country-by-country reporting under Action 13, despite being compliance-intensive, is believed to have had a "chilling effect" on the most aggressive profit-shifting arrangements by increasing transparency. Research suggests higher effective tax rates for firms just above reporting thresholds, indicating that transparency alone discouraged extreme planning. Furthermore, Action 14’s dispute resolution framework and Action 15’s multilateral instrument represent the best of what coordination can offer: using harmonization to reduce, rather than raise, compliance costs and improve certainty for taxpayers.
Beyond specific agreements, the OECD’s analytical and statistical functions—providing revenue data, comparative effective tax rate analyses, and economic modeling—remain invaluable, irrespective of its negotiating outcomes. The International Tax Competitiveness Index itself relies on some OECD data, demonstrating that skepticism towards certain multilateral agreements does not equate to a broad rejection of multilateral institutions or their core data-gathering and analytical functions.
Where Multilateralism Goes Wrong: Scope Creep and Diminishing Returns
The core criticism against recent multilateral efforts is that the BEPS project did not stop at addressing genuine arbitrage. As it moved further from its original problem statement, the economic justification for its interventions weakened, and the associated compliance costs surged.
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Scope Creep and Diminishing Returns: Early BEPS efforts targeted the "low-hanging fruit" of egregious avoidance structures. Subsequent initiatives, particularly Pillar Two’s global minimum tax, increasingly targeted situations where the "problem" was simply that one country offered more generous tax provisions than another. This often represents legitimate tax competition and policy experimentation, not necessarily arbitrage. The compliance costs of each successive multilateral action have been higher, while the marginal revenue gains have been smaller and more speculative. The extraordinary ambition of Pillar One, aiming to realign taxing rights towards market countries, has largely stalled in negotiations due to fundamental disagreements among nations. Pillar Two, establishing a 15 percent global minimum corporate income tax, has seen partial implementation but with significant struggles and substantial compliance costs.
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Competing Interests and Implementation Failures: Multilateral agreements are inherently negotiated by countries to advance their own revenue interests, not to maximize global economic growth. Pillar One’s architecture, for instance, reflects a tug-of-war where countries prefer destination-based taxation when they are net importers and source-based taxation when net exporters, leading to complex compromises that satisfy no single logic cleanly. Domestically, negotiators often agree internationally to provisions that prove difficult to implement at home. This can lead to policymakers repackaging controversial domestic changes as international obligations rather than defending them on their own merits. Early versions of Pillar Two, for example, would have effectively forced the United States to restructure key features of its R&D incentive regime to avoid top-up taxes imposed by other countries, highlighting a pattern where international commitments were more challenging to domestic policy than anticipated.
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Costs Front-Loaded, Benefits Speculative: The compliance infrastructure for Pillar Two is already being built globally—systems for top-up tax calculations, GLOBE information returns, treaty interaction analysis—incurring real and immediate costs for businesses and tax administrations. Yet, the anticipated revenue gains remain deeply uncertain and, compared to the difficulty involved, not particularly large. The reliance on accounting rules rather than purpose-designed tax concepts for Pillar Two has further compounded incoherence, leading to persistent issues, particularly in the treatment of refundable versus non-refundable tax credits, which have undergone multiple revisions based on negotiating pressures rather than consistent principle.
The Option Value of National Experimentation
Perhaps the most subtle but significant cost of premature harmonization is that it forecloses policy learning and innovation. Estonia’s distributed profits tax, introduced in 2000, served as a real-world laboratory. Latvia observed, evaluated its effectiveness over nearly two decades, and then adopted its own version in 2018. Other countries, like Poland, are now considering elements of this Baltic model. Had a mandatory global standard on corporate tax structure existed in 2000, Estonia’s experiment would have been prevented entirely, and Latvia would have had no proven model to emulate. The "option value" of allowing countries to experiment with different tax approaches is immense, and the international community should be structured to preserve, not eliminate, this crucial avenue for policy development.
Conclusion: A Call for Learning, Not Mandates
The diverse and successful national tax reforms documented in this analysis share a common orientation: identifying and reducing unnecessary costs on investment, work, and compliance through deliberate, domestically chosen actions. None required a global agreement. While several were influenced by international examples or pressures, the decisive choices about what to change and how were made in national capitals.
This is not a blanket rejection of international coordination. Early BEPS actions, such as closing hybrid mismatch loopholes and tightening permanent establishment definitions, addressed genuine mismatches that required cross-border cooperation. Dispute resolution frameworks and mechanisms for updating tax treaties demonstrably reduce compliance costs and benefit all parties. Moreover, international benchmarking, exemplified by the International Tax Competitiveness Index, creates the conditions for the very policy learning this paper highlights—Latvia learned from Estonia, and Switzerland’s STAF architecture, partly shaped by OECD pressure, emerged stronger for it.
The argument is nuanced: coordination is most effective when targeted at genuine mismatches, most of which have already been addressed. As multilateral efforts extend beyond these specific arbitrage problems—into areas like rate harmonization, accounting-based minimum taxes, and mandatory convergence on unsettled questions of tax design—the cost-benefit ratio rapidly deteriorates. The continued expansion of the multilateral agenda risks displacing attention and resources from the nationally determined reforms that have proven to be the most reliable source of genuine improvement in tax system quality over the last decade.
The menu for reform remains open for nearly every OECD member, with substantial room for improvement across at least one of the five dimensions measured by the Index. The countries highlighted here did not wait for a global agreement to initiate their improvements. Others should follow their example. International tax practitioners should advocate for an international community that fosters learning and the sharing of best practices, while remaining skeptical of one that seeks to impose rigid global mandates.
