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Canada Offers Lowest Tax Costs For Businesses

by Mike Godfrey,, Washington

19 June 2014

The combination of a low effective corporate tax rate, harmonized sales taxes, and moderate statutory labor costs has secured Canada the standing of the most tax-competitive country for businesses in the eyes of KPMG.

KPMG's new report, Competitive Alternatives 2014: Focus on Tax, assesses the general tax competitiveness of 107 cities located in Australia, Canada, France, Germany, Italy, Japan, Mexico, the Netherlands, the UK, and the United States. It compares the total tax burden faced by companies in each country and city, including corporate income taxes, property taxes, capital taxes, sales taxes, local business taxes, and statutory labor costs.

Total tax costs are compared using a Total Tax Index (TTI) for each location. This is a measure of the total taxes paid by corporations, expressed as a percentage of total taxes paid by firms in the US. The US therefore, as the benchmark, has a "TTI" of 100.0.

KMPG concluded that Canada has the lowest TTI at 53.6 percent. The UK's TTI stands at 66.6 percent, with Mexico coming in third with 70.2 percent. At the other end of the spectrum, France, with a TTI of 163.3 percent, has tax costs that are 63.3 percent higher than in the US.

This is the second year in a row that Canada has come top. Its TTI is also down on 2012 levels, when it was registered as 59.1 percent.

The 15 featured Canadian cities ranked ahead of their US counterparts again. Edmonton was found to be the most competitive city in Canada, with Saskatoon falling from first place because of changes to the Saskatchewan research and development (R&D) tax credit in 2012. Atlantic Canada remains the most competitive region in the country.

Canada likewise ranked first for the digital services sector. KMPG says this is primarily due to significant provincial incentives that provide support to video game producers and other digital media industries. Federal and provincial income tax credits for the R&D sector enabled Canada to retain first place in this sector also. In the corporate services sector, Canada came in second behind the UK. It was second to Mexico in the manufacturing sector.

Commenting on the findings, Elio Luongo, Canadian Managing Partner, Tax, said: "This year's report demonstrates that once again Canada provides an attractive business tax climate. Our corporate tax policies ensure Canada remains a viable option and desirable location for businesses looking to locate or expand their operations."

The study also reveals that there is no standard approach in setting tax policy among the jurisdictions examined. Although the types of taxes are more or less the same across the board, KMPG found great diversity in how they are weighted and applied. For instance, the countries most focused on delivering a low corporate tax rate tend to rely more heavily on other levies, such as payroll taxes. For companies in service industries, labor generally represents a more significant cost factor, whereas for firms in the capital-intensive manufacturing sector, capital and property taxes are of greater concern, it pointed out.

TAGS: tax | business | sales tax | Netherlands | property tax | tax incentives | corporation tax | Australia | Mexico | United Kingdom | payroll | tax credits | ministry of finance | tax authority | manufacturing | tax rates | Canada | France | Germany | Italy | United States | revenue statistics | tax reform | Japan | services | research and development | Tax

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