Germany’s Tax System in Urgent Need of a Major Overhaul

Together with the Washington-based Tax Foundation, Prometheus – Home of Freedom – has presented the 2025 International Tax Competitiveness Index.

The new Tax Foundation index ranks Germany only 20th among OECD countries — far behind Switzerland in 4th place and just behind Austria in 19th. Planned reforms would improve the situation slightly, as the index details. A reduction of the combined corporate tax burden by five percentage points and the abolition of the corporate solidarity surcharge would push Germany up to 14th place in the overall index. Hardly a top position.

For the 12th year in a row, Estonia takes the lead with the best tax system. The index evaluates tax systems based on more than 40 different variables, using the most recent data available (as of July 2025) and drawing on numerous sources, including the European Commission, the International Monetary Fund, and the OECD.

The comparison with successful countries such as Switzerland and Estonia makes one thing clear: Germany urgently needs a fundamental corporate tax reform.

Frank Schäffler, Managing Director of Prometheus, comments on the results:
»Germany needs a fundamental corporate tax reform, not small band-aid measures. Lowering the corporate tax could increase long-term GDP by around 1 %. However, phasing out the accelerated depreciation for movable assets and residential buildings in the coming years would offset the associated growth effect of about 2.1 % of long-term GDP. That’s simply not enough.«

Alexander Mengden, Global Policy Analyst at the Tax Foundation, adds:
»Germany ranks only 20th out of 38 OECD countries in the 2025 International Tax Competitiveness Index, remaining in the lower mid-field. In terms of corporate taxes, we’ve slipped to 30th place in recent years. With a corporate tax rate of around 30%, we now have the fourth-highest in the OECD. Progress in tax structure has been either hesitant or tied to temporary measures.«

On the planned reforms, Mengden says:
»The proposed five-percentage-point cut in corporate tax, combined with the Chancellor’s proposal to abolish the corporate solidarity surcharge, are steps in the right direction. They would move Germany from 20th to 14th place in the overall index. Our model simulations show: this reform could boost GDP by about 1% and raise wages by 0.8 %, since in the long run employees bear around half of the corporate tax burden through lower wages.«

The full index is available at: https://heimatderfreiheit.de/wp-content/uploads/2025/10/International-Tax-Competitiveness-Index-2025-inkl.-Executive-Summary.pdf

Prometheus was founded in 2015 and is based in Berlin. It is non-partisan and dedicated to liberal ideas, education, and networking.

Source: press release