There are many variables when examining which country is best for business, whether it be demographics, infrastructure, cost of living or personal quality of life. An important consideration when deciding where to set up shop is total tax costs.
Income tax costs typically make up 18 per cent of businesses' total tax costs, a critical element and often the deciding factor when choosing where to locate operations. That being said, it is important to remember tax costs are one piece of the puzzle, and should not stand alone in the decision-making process.
To help Canadian and international businesses, economic developers, and corporate site selectors make informed decisions, KPMG initiated its Competitive Alternatives study. Competitive Alternatives, conducted every two years, is a global study comparing total business costs across 14 countries, focusing on four sectors: Digital, Research & Development (R&D), Corporate Services and Manufacturing.
In March 2012, KPMG launched its most recent Competitive Alternatives report, examining total business costs and non-business cost factors of 14 major international economies. In September 2012, KPMG launched its supplement study, Focus on Tax. Focus on Tax provides an effective approach for international comparisons based on the tax results of different business scenarios.
Focus on Tax found Canada continues to offer a very competitive tax structure. Canada is the second most tax competitive country among 14 major global economies, after India, and took top spot among mature markets. Canada's strong second place means a top 10 finish for three major international Canadian cities (population greater than two million) among the 55 major international cities studied. Vancouver ranked second, Toronto fifth, and Montreal following in sixth place.
In addition to 55 major international cities, Focus on Tax compared select Canadian cities' tax competitiveness regardless of size. All 16 featured Canadian cities ranked ahead of all U.S. cities, and among the 16 featured Canadian cities, Saskatoon is the most tax competitive location overall, with Edmonton, Moncton, St. John's, and Fredericton following, respectively.
Aside from ranking major international cities and Canada's 16 featured cities, Focus on Tax discusses important tax considerations for any business looking beyond its borders. Taxes can often prove complex and present unique situations for Canadian and international businesses. The following tax trends should be top-of-mind for anyone looking to relocate or expand their operations:
Tax policy varies widely by country. There is no standard approach in setting tax policy among the countries examined. A country's tax policy choices can significantly affect the tax cost of doing business in that country. Some countries use their tax policies to attract certain types of businesses with targeted incentives for activities such as manufacturing and R&D.
Differences in how taxes are weighted and applied creates complexity. While companies often use a country's corporate income tax rate as a proxy for overall tax costs in a location, this rate does not tell the whole story. Variations in how taxes are weighted and applied complicate efforts to compare tax costs effectively and highlight the need to make comparisons based on the complete range of tax costs that apply in each location in the context of the specific business.
Tax costs vary widely by industry. The overall results for each location combine the results of different types of business operations, and results among the different business sectors vary widely. Of the four sectors studied, R&D operations see the most extreme variation in tax costs among countries, due to intense competition among many countries to attract R&D businesses by offering generous tax incentives.
Tax costs vary more widely than most other costs. Even though taxes do not comprise the largest portion of overall costs, there is much greater variation in tax costs among locations. Since tax costs are likely to range more widely than other costs, they can take on greater importance than other costs in business location decisions.
Factoring in these tax trends, it's safe to say, the tax landscape is a delicate ecosystem, and even the slightest change can certainly impact a location's overall competitiveness. A competitive tax structure is crucial to attracting inbound investment, spurring innovation, and creating skilled jobs.
To view the study's complete findings, download the report at www.CompetitiveAlternatives.com.