If Latin American governments want their own companies to compete effectively
with global rivals, they could help by reducing the heavy cost of compliance
with local tax and other laws, according to tax and business advisory firm KPMG.
This is the conclusion of a survey of Latin American corporate investment plans
carried out by KPMG International.
Corporate executives from nearly 140 of the largest multinational companies
in seven major Latin American economies were asked which countries they plan
to invest in over the next 12 months and which in five years’ time.
They were also asked whether they would be prepared to follow new recommendations
from the Organisation for Economic Co-operation and Development (OECD) to provide
more business information to their tax authorities in exchange for lighter regulation
and a relationship based on mutual trust.
The survey found that more than 70% of respondents would be prepared to be
more open with their tax authorities if this meant light touch regulation.
In Brazil and Colombia, around 90% took this view. In Peru and Argentina, the
numbers who felt that an enhanced relationship was possible fell to 56% and
55% respectively, but although only 33% of Peruvians were prepared to volunteer
more information on their businesses, 70% of Argentineans said this is something
they would do.
Asked if light touch regulation would make any difference to their company’s
tax policies, 68% said that it would prompt a review. Of these, half said it
would allow them to make their policies simpler and more transparent and half
said they would check to ensure full compliance with tax regulations.
“There is a clear desire among business people to work with the authorities
to simplify the tax system and reduce the burden of costs on companies,”
said Jose Aldrich, KPMG’s IberoAmerica region Tax Services Managing Partner.
The study also concluded that Brazil, Mexico and Chile are all targets for
global corporate investors looking to build international businesses but only
Mexico can expect an increase in investment from Latin American companies in
the next five years. Brazil's share of Latin American corporate investments
is expected to fall by 2% and Chile's by 11%.
However, for now, Brazil is the clear leader for Latin American corporate investment,
with 21% of respondents saying they are planning to invest in the country in
the next 12 months and 19% planning an investment by 2013/14.
Next is the US, with 19% planning an investment next year and 15% by 2013/14,
followed by Argentina on 15% this year and 10% in five years’ time.
Chile does well this year, with 15% planning an investment. But looking ahead,
investment support collapses with only 4% planning to invest by 2013/14. This
decline comes mostly in manufacturing, where 17% of manufacturing respondents
are planning an investment next year, but none in five years’ time.
Mexico is the only Latin American economy to increase its share of investment
plans, rising from 8% next year to 10% by 2013/14.
“These results contrast strongly with the results of a similar survey
we carried out earlier in the year among corporate investors in 15 countries
around the world,” Aldrich observed, adding:
“It looks as if large multinationals outside Latin America are keen to
invest here but local companies are much more cautious. The reasons for this
caution will vary widely from company to company but one thing that many of
them have in common is that although we were talking to the largest Latin American
companies, many are less than a quarter of the size of the largest global companies.
“This translates into fewer resources available to deal with the complex
tax and regulatory systems found in many Latin American countries. If governments
in this region want their own companies to compete effectively with global rivals,
they could help by reducing the heavy cost of compliance with local tax and
other laws."
He concluded: “Latin American business is prepared to meet the challenges
of today’s global market but it needs the help and support of its governments
if it is to compete effectively with much larger foreign corporations. The authorities
may be able to take a global lead by exploring the opportunities for collaboration
that the OECD’s tax initiative presents. In the increasingly competitive
modern world, that may be an advantage worth taking."
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