The US and Canada have been grouped in with the Republic of Congo, China, Brazil and Germany in a new study by the CD Howe Institute. The report by the Canadian conservative think tank shows that the US has some of the highest effective tax rates on capital among 81 developed and developing countries.

The 2006 Tax Competitiveness Report looked at 81 countries and scores them according to their tax treatment of business investment. The study concluded that highly taxed Canada ranks a disappointing 8th place.

The "investment-hostile" Republic of Congo ranked first, according to the study. The US ranked among the most heavily burdened, with an effective tax rate on capital of 38%, above both Canada and Mexico at 36.6% and 13.8%, respectively.

The study found that China has the second highest effective tax rate at 47%, driven by a non-refundable 17% value-added tax applied to the purchase of machinery.

Argentina, Brazil and Germany complete the top five list of tax-burden "bad boys."

The most tax-favored jurisdictions include Hong Kong with a tax of 6.1%, Singapore at 11.5% and Ireland at 14%. This is a reflection of the countrys' low corporate income tax rates.

Belgium was found to have the lowest effective tax rate on capital among all 81 countries at -4.4%. This is a result from the introduction of a national deduction for equity financing. Belgian companies are able to claim a higher tax value of deductions compared to the tax levied on income earned from investments, said the study.

"The US certainly looks like a high-tax country when it comes to business taxation," said the authors of the study, Chen and Mintz. They agreed with the conclusions of the Presidential tax reform panel that the US corporate tax system is "a major barrier to investment and growth, degrading other strengths of the US economy."

"Instead of using the tax system to interfere with economically sound business decisions, it would be much better to have a broadbased neutral corporate income tax with low rates to create a better business environment," the study continued. "Simplification would make it easier for taxpayers to comply with the system and for the IRS to administer the tax system."

"The savings in compliance and administrative costs would be good for the US economy as well."