European Nations Leading in Top Tax Rates

October 6, 2010 International Tax CooperationTaxation in UK

Lost...Countries within the European Union are leading the world in levying high top personal income tax rates, with a regional average of 37.2 percent.

Governments across the European Union (EU) are reevaluating their tax policies in the wake of the global financial crisis and the ensuing rise in budget deficits, with the UK making the most significant upward tax rate revision. According to 2010 Individual Income Tax and Social Security Rate Survey, a report released by the international accounting firm KPMG, the UK now has the 4th highest top personal income tax rate in the EU, at a level of 50 percent. The rate is only beaten by Sweden, Denmark, and the Netherlands, at 56.6 percent, 55.4 percent and 52 percent respectively.

The report shows that governments of the EU have predominantly opted to use tax rate increases to combat the lingering budget deficit caused by the financial crisis. According to figures within the report, top personal income tax rates in EU27 nations rose by an average of 0.5 percent since 2009, to a level of 37.2 percent. In that time only Sweden, Denmark, Finland and Hungary opted to decrease their top rates, by 0.1 percent, 6.9 percent, 0.2 percent, and 4 percent respectively.

Governments worldwide are choosing to increase their top earner tax rates, with a global average rise of 0.3 percent. Latin America showed the most significant rise, with an average of 0.8 percent. The Asia-Pacific region experienced 0.4 percent fall, however this has been attributed to decrease in Malaysia and New Zealand, and a lack of movement from other jurisdictions. The KPMG survey indicated that these increase are an initial set of rises, with signals being sent that more governments could follow suit in the near future and place heavier reliance on revenues from taxing top earners.

Jayne Vaughan, tax partner in International Executive Services at KPMG UK, commented on the potential economic effects of increased tax rate, saying that it might become a detractor for high earning individuals. He said that highly educated or skilled employees carry with them a high amount potential tax revenues and disposable incomes. However, they are also comparatively mobile, and are able to relocate based on their own financial and tax situation. This has a secondary effect of influencing the operating location of many large businesses. Cumulatively making attracting high-income earners a key consideration for governments.

Photo by milena mihaylova