It is an important consideration for businesses, accounting for more than 10% of location-sensitive costs in some cases. Sadly, it is also a favourite recreation of politicians.

Thankfully, tax competition in Europe has been a salient feature in recent years, with a continuing downward pressure on tax rates putting it ahead of the other major market areas of the globe. The average statutory corporate income tax rate is 25% in Europe – the OECD average rate is 28%.

The new Europeans have been at the vanguard of reducing and simplifying corporate taxation. The introduction of flat-tax regimes and significant decreases in corporate tax rates have signalled that countries such as Russia, Slovakia, Estonia, Latvia, Lithuania, Poland and Hungary are market-orientated and want to do business. It has also put the wind up the old Europeans.

The big economies of Europe love tax, and are tax maniacs. Germany and France have been big taxers for years and are finally waking up to the competition. Germany has recently announced a major overhaul, setting the corporate tax rate at just under 30%, although some observers think that it should be reduced to 25% to compete seriously. The planned reform is intended to take effect from January 2008.

The UK claims to be a lightly taxed economy, but tax has been quietly creeping up, putting on the pounds. If it wants to remain the number one FDI location in Europe, the UK had better go on a diet soon. Fat tax is not attractive in today’s sleek Europe.

This beauty parade by headline corporate tax rate is a bit misleading, however, because it does not necessarily give the full story. The effective tax rate of a country is derived from a mix of the headline rate, indirect taxes, tax exemptions, investment incentives, tax complexity and consistency of the system.

So corporates need to turn to a trusted business adviser when it comes to sorting out a clear picture and strategy on tax. This is why there is an army of tax accountants and lawyers across Europe who are ready and willing to provide their services – with all needs and preferences catered for.

Douglas Clark is a director of Tenon techlocate, the London-based location consultancy of the Tenon Group, a UK national firm of accountants and business advisers.

E-mail:douglas.clark@tenongroup.com