Canada among the top in the world for tax competitiveness: KPMG study

Vancouver, Toronto and Montréal rank top 10 of 55 major international cities studied

TORONTO, Sept. 25, 2012 /CNW/ - Canada is the second most tax competitive country among 14 major global economies, after India, and took the top spot among mature markets, according to KPMG's Competitive Alternatives 2012: Focus on Tax (Focus on Tax) study. Here at home, Canadian cities, Vancouver (2nd), Toronto (5th) and Montréal (6th) ranked in the top 10 among 55 major international cities studied. The global KPMG study assesses the general tax competitiveness of 55 major international cities in 14 countries, and for the first time, the 2012 study features four major high growth countries - Brazil, Russia, India and China (BRIC).

"The study provides an effective approach for international comparisons based on the tax results of different business scenarios," said Elio Luongo, Canadian Managing Partner, Tax, KPMG in Canada. "Canada continues to offer a very competitive tax structure, which is crucial to attracting inbound investment, spurring innovation, and creating skilled jobs that support our families and communities in Canada."

Focus on Tax is a supplement to KPMG's 2012 Competitive Alternatives (March 2012), a global study comparing total business costs across 14 countries. Focus on Tax compares the total tax burden faced by companies in each country and city, including: corporate income taxes, capital taxes, sales taxes, property taxes, miscellaneous local business taxes, and statutory labour costs, resulting in a Total Tax Index (TTI) for each location based on 19 different business operations in four sectors described below.

Canada vs. the Globe

Overall rankings and total tax cost indices for featured countries
(Listed by market type from lowest Total Tax Index (TTI)** to highest TTI)
Overall
2012
Rank
Mature or
High Growth
Rank
Country 2012
Total Tax
Index**
% tax cost
advantage
versus US
High Growth Market
1 1 India 49.7 50.3%
3 2 China 59.7 40.3%
4 3 Mexico 63.6 36.4%
5 4 Russia 71.7 28.3%
11 5 Brazil 142.6 -42.6%
Mature Market
2 1 Canada 59.1 40.9%
6 2 United Kingdom 73.3 26.7%
7 3 Netherlands 77.2 22.8%
8 4 United States 100.0 0.0%
9 5 Germany 122.0 -22.0%
10 6 Australia 125.1 -25.1%
12 7 Japan 152.3 -52.3%
13 8 Italy 152.9 -52.9%
14 9 France 179.7 -79.7%

**Total tax costs are compared between countries and cities using a TTI for each location. The TTI is a measure of the total taxes paid by corporations in a particular location, expressed as a percentage of total taxes paid by corporations in the United States (US). The US has a TTI of 100.0, which represents the benchmark against which the other countries and cities are scored. For example, an overall index number of 59.1 means total tax costs are 40.9 percent lower in that country than in the United States.

Featured Canadian Cities fare well on global stage
While Vancouver, Toronto and Montréal are classified as major international cities (population greater than two million), and rank in the top 10 of 55 major international cities, Focus on Tax does measure 16 featured Canadian cities, and their associated total tax costs.

All 16 featured Canadian cities ranked ahead of all US cities, and among the 16 featured Canadian cities, Saskatoon (43.8) is the most tax competitive location overall, with Edmonton (44.2), Moncton (45.1), St. John's (45.4), and Fredericton (45.5) following.

Overall rankings and total tax cost indices for featured Canadian cities
(Listed from lowest Total Tax Index (TTI) to highest TTI)
2012
Rank
City 2012 Total
Tax Index
  2012
Rank
City 2012 Total
Tax Index
1 Saskatoon 43.8   9 Trois-Rivières 53.8
2 Edmonton 44.2   10 Prince George 54.2
3 Moncton 45.1   11 Charlottetown 54.4
4 St. John's 45.4   12 Winnipeg 54.7
5 Fredericton 45.5   13 Toronto 56.0
6 Vancouver 49.2   14 Windsor-Essex 56.8
7 Halifax 49.4   15 Montréal 62.1
8 Calgary 50.7   16 Québec City 62.8

Canada leads in digital and R&D
At the sector-level (Digital, R&D, Corporate Services, and Manufacturing), Canada's TTI results vary:

Canada's sector rankings and associated tax cost advantage
Sector 2012
Sector
Rank
2012
Sector
Tax Index
% tax cost
advantage
versus US
Digital 1 16.5 83.5%
R&D 1 29.0 71.0%
Corporate
Services
4 68.1 31.9%
Manufacturing 4 69.8 30.2%

Digital
Canada ranks first for digital operations, well ahead of India and with the lowest TTI, primarily due to targeted incentives that provide significant financial support to digital media industries. Toronto (7.9), Montréal (25.2), and Vancouver (34.5) take the top three spots, respectively, for tax competitiveness in the digital sector among the 55 major international cities studied. These three cities all exhibit very low TTIs due to the impact of digital media incentives offered by the relevant Canadian provinces.

R&D
TTI rankings of countries for R&D operations vary significantly from other sectors and overall results, primarily due to the impact of tax incentives targeted to foster R&D activity. Canada (29.0) ranks first, with India (47.0), Netherlands (57.8), United Kingdom (63.2), and Russia (63.9) following, all with particularly low TTI ratings that reflect the effects of significant R&D incentives in those countries. Montréal (20.3), Vancouver (32.9), and Toronto (37.6) take the top three spots, respectively, for tax competitiveness in the R&D sector among the 55 major international cities studied.

In March 2012, subsequent to the completion of research and analysis for this report, the Government of Canada announced reductions to its R&D tax credit programs to commence in 2014. For operations that are highly R&D intensive, such as the dedicated R&D facilities examined in the R&D sector of this study, it is common for operations to earn more R&D credits than they are able to use (due to low taxable income, if any). Therefore, the reduction in Canadian federal R&D tax credits announced in the March budget is not expected to have a notable impact on Canada's rankings for the R&D sector in future editions of this study. However, for other types of operations with a lower intensity of R&D (such as a manufacturer who also conducts some ongoing R&D), the recent federal changes may increase their tax burden and impact Canada's rankings in future editions of this study.

Corporate services
Consistent with the overall results, India (50.0) also has the lowest TTI ranking for corporate services while Italy (186.2) and France (244.2) have the highest TTI ratings. The TTI rankings for these countries are also consistent with their rankings for statutory labour costs, illustrating the significance of this cost category to services firms where labour represents the predominant business cost factor. Canada (68.1) sees higher TTI scores in this sector and as such, its ranking slips to fourth.

Manufacturing
Canada and Russia both move down in the rankings for manufacturing, with Canada (69.8) ranking fourth behind India (49.3), China (51.2) and Mexico (60.0), while Russia (77.6) ranks seventh also behind the United Kingdom (74.4) and the Netherlands (76.8). In both Canada and Russia, higher costs for other corporate taxes, particularly property taxes, have a significant impact on the manufacturing sector.

In Canada, a lesser significance of incentives in this sector, relative to digital and R&D, also results in a higher income tax burden for the manufacturing sector - however, Vancouver (53.0) represents an exception, ranking ahead of Mumbai (53.2), Shanghai (58.7), Monterrey (59.4) and Mexico City (60.6), even though Canada ranks behind each of India, China, and Mexico in the national results.

High Growth Markets
The 2012 edition is the first edition of KPMG's Competitive Alternatives: Focus on Tax study to examine the major high growth countries and compare tax competitiveness in Brazil, Russia, India, China, and Mexico.

There is significant divergence between results for Brazil relative to the other four high growth countries—India, China, Mexico, and Russia. While the latter countries all rank among the top five countries for low tax burden with costs approximately 30 to 50 percent lower than the United States, Brazil ranks 11th among the 14 countries, with a tax burden 42.6 percent higher than the United States.

It is important to note that tax policies vary more widely than most other business costs, they vary by country, and differences in how taxes are weighted and applied in each country creates complexity. The divergent results for India and Brazil highlight the fact that these issues apply equally to the newly added BRIC countries as to the mature market countries studied in previous years. As such, low labour costs in high growth countries do not necessarily mean low tax costs in those countries.

About KPMG's Competitive Alternatives Study: Focus on Tax

Focus on Tax is a supplement to the 2012 edition of Competitive Alternatives, KPMG's guide to international business location costs. It assesses the general tax competitiveness of the 113 cities in 14 countries studied in the main Competitive Alternatives report, but focusing primarily on 55 major international cities. For the first time, the 2012 study features four major high growth countries—Brazil, Russia, India and China—frequently referred to as the "BRIC Countries". The 10 other countries examined are Australia, Canada, France, Germany, Italy, Japan, Mexico, the Netherlands, the United Kingdom, and the United States. Details of all cities covered are included in Appendix A of the report.

Full details of the specific tax rates applied for corporate income tax and other corporate taxes in each jurisdiction can be found in Appendix B of the Competitive Alternatives 2012 Volume II study report. Full details of data sources used for tax information and the broader business cost factors (such as local wages and property values) that impact this study can be found in Appendix D of the Competitive Alternatives 2012 Volume II study report.

Tax rates used in this study are those in effect as at January 1, 2012. Tax calculations over the 10-year analysis horizon incorporate future tax changes announced on or before January 1, 2012, that will come into force during the next 10 years.

To access the full report, please visit www.CompetitiveAlternatives.com

About KPMG
KPMG LLP, an Audit, Tax and Advisory firm (kpmg.ca) and a Canadian limited liability partnership established under the laws of Ontario, is the Canadian member firm of KPMG International Cooperative ("KPMG International"). KPMG member firms around the world have 145,000 professionals, in 152 countries.

The independent member firms of the KPMG network are affiliated with KPMG International, a Swiss entity. Each KPMG firm is a legally distinct and separate entity, and describes itself as such.

Follow @KPMG_Canada for more facts from the Competitive Alternatives 2012: Focus on Tax study.

 

 

SOURCE: KPMG LLP

For further information:

Michael Bodsworth 
National Manager, Media Relations 
KPMG in Canada 
(416) 777-3407 
mbodsworth@kpmg.ca


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