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Latin American Investors Want Simpler Taxes

by Leroy Baker,, New York

03 December 2007

Businesses looking to invest in Latin America see simpler tax systems as a major priority for governments in the region, but do not believe that current plans to reform taxes will reduce complexity, according to a poll of multinational corporations carried out recently by KPMG International.

Asked by KPMG whether they thought that current tax reform plans in the Latin America region would simplify their tax compliance, 78% said no. However, the survey found that many of those questioned believed that the route to effective reform should include more contact and collaboration between governments and businesses to design simple, workable tax systems.

The poll was undertaken among delegates at KPMG's 2007 IberoAmerica Tax Summit in Mexico City. Over 250 delegates attended, representing 87 KPMG clients from 21 countries.

A similar poll, undertaken a year ago at KPMG's 2006 Tax Summit in Buenos Aires, showed that major concerns affecting business at that time were tax rates and the independence of Latin American legal systems. Last year, only 6% of delegates said that quality of tax administrations was important in establishing long term confidence in a country, but this year in Mexico City, that figure rose to 30%

This increased interest in simpler tax administration showed again when delegates were asked which changes to tax systems in the major Latin American countries would most encourage inward investment, KPMG stated.

In 2006, 28% answered lower tax rates, and 34% said simpler administration. This year only 17% chose lower tax rates, while 49% chose simpler administration.

"2007 has been a year of major change for Latin America," commented KPMG's IberoAmerica Region Tax Services Managing Partner and US firm partner, Jose Aldrich, adding: "and we think this increased interest in developing good tax administration comes from a new feeling among business people that they can engage directly with governments and make a difference in the way that tax systems operate".

The survey revealed that delegates see an opportunity to make improvements. Asked whether tax is being used effectively by governments as a competitive tool to attract inward investment, 82% said either that it was not, or that governments were only just beginning to do so. Yet 60% of delegates in Mexico agreed that Latin America is an attractive region for investment.

"There is a clear appetite for helping governments to find ways to make tax systems more attractive and more internationally competitive," added Mr. Aldrich, "and those countries that make efforts to move in this direction can expect support."

He continued: "In Buenos Aires last year, only 14%of delegates thought that Mexico had a good chance of becoming a leading economic power. This year, in Mexico City, with a large reform program actively under way, that figure has jumped to 34%. And among the major Latin American economies, China, India and Eastern Europe, the country which can expect to receive the largest share of these companies’ investment funds in the coming year is Mexico."

"This is clear evidence that businesses want tax reform, want to be involved in tax reform programs, and are prepared to offer real support to those countries that deliver them."

Commenting on the discussions that took place at the Summit, Loughlin Hickey, KPMG's Global Head of Tax, and UK firm partner noted:

"Given the willingness of our delegates to engage constructively with the authorities to improve tax systems, I think there is a clear opportunity for governments and business to come together for the benefit of both."

"But for this to happen, there also needs to be a constructive dialogue with the tax authorities. One of the poll answers suggests that the current climate is more confrontational than collaborative. It is likely that the tax authorities themselves are under strain due to the complexity of the system they are trying to administer, the tax revenues they need to raise, and in some cases a narrow base of taxpayers from which to collect."

He concluded: "I believe therefore that governments, tax authorities and business can all benefit from a serious dialogue around reform."

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