Canada remains most competitive business tax environment worldwide: KPMG

Toronto, Vancouver and Montreal lead international cities for tax competitiveness

TORONTO, June 17, 2014 /CNW/ - KPMG's Competitive Alternatives 2014: Focus on Tax report released today revealed that Canada remains the most tax competitive country for business globally. Canada's top international ranking is mainly due to low effective corporate income tax policy combined with moderate statutory labour costs as well as our harmonized sales taxes. The United Kingdom ranked in second spot with Mexico landing in third in terms of tax competitiveness.

Toronto, Vancouver and Montreal held the top three spots among the 51 major international cities (population of two million or more) included in the 2014 report.  A total of 107 cities were featured in the study, of which 15 were Canadian.

When we include all cities regardless of size, nationally, Edmonton ranked as the most tax competitive city in Canada, improving on its second-place ranking among small and large Canadian cities in the 2012 report.

The study also revealed there is no standard approach in setting tax policy among the countries studied.  Although the types of taxes used to raise government revenues are more or less similar among countries, there is a large range in how these taxes are weighted and applied.

Some countries have a tax policy focused on delivering a low corporate income tax rate in order to compete for more businesses. These countries may need to rely more heavily on other taxes, such as sales or payroll taxes, to derive their tax revenues. Similarly, some countries use their tax policies to attract certain types of businesses with targeted incentives for activities such as manufacturing or research and development (R&D). The Organisation for Economic Co-operation and Development (OECD) continues to address these types of differences in its BEPS 15 Point Action Plan to introduce global collaboration to modernize the international tax system.

Overall ranking and total tax index* for featured countries

2014 Rank	Country	2014  Total Tax Index*	% tax cost advantage versus US		2014 Rank	Country	2014  Total Tax Index	% tax cost advantage versus US
1	Canada	53.6	46.4%		6	Australia	112.9	-12.9%
2	United Kingdom	66.6	33.4%		7	Germany	116.3	-16.3%
3	Mexico	70.2	29.8%		8	Japan	118.6	-18.6%
4	Netherlands	74.5	25.5%		9	Italy	135.8	-35.8%
5	United States	100.0	-		10	France	163.3	-63.3%

*Total tax costs are compared between countries and cities using a Total Tax Index (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 US. The US has a TTI of 100.0, representing the benchmark against which other countries and cities are scored.  For example, an overall index number of 51.6 means total tax costs are 48.4 per cent lower in that country than the US.

The top three: a Canadian sweep

Toronto, Vancouver and Montreal take the top three spots among major international cities in 2014:

• Toronto ranked first overall among the 51 major international cities studied. For the four sectors studied - digital services, R&D, corporate services and manufacturing - Toronto ranked fifth or higher in each sector, but didn't rank first in any single sector. This shows Toronto as having consistently competitive taxes for a wide range of businesses, rather than especially low taxes for one sector in particular.
• Vancouver ranked ahead of Toronto in 2012, but dropped behind Toronto in the 2014 rankings. This change in ranking is due to several factors, including BC's corporate tax rate increase from 10 per cent to 11 per cent, the final reversion from HST to PST, and the elimination of the BC industrial property tax credit (which provided a partial exemption from school taxes for industrial property).
• The range of tax incentives available in Montreal contributes significantly to its relatively low tax costs. Incentives are available for many activities included in this study, including R&D, e-business, digital media production, international financial activities and manufacturing.

Ranking and total tax index for top 5 major international cities (population of two million or more)

2014 Rank	City	2014 Total Tax Index
1	Toronto, CA	51.6
2	Vancouver, CA	54.5
3	Montreal, CA	55.6
4	Manchester, UK	58.1
5	Monterrey, MX	69.4

Here at home: Canadian highlights

Smaller Canadian cities, in addition to the larger international ones, were also studied as part of the 2014 report.  The 15 featured Canadian cities ranked ahead of their US counterparts yet again; however there are some changes this year in the national rankings:

• Edmonton is the most tax competitive city in Canada, having moved up from 2^nd place in 2012 due to the former tax leader, Saskatoon, dropping to 6^th place in 2014. Changes made to the Saskatchewan R&D tax credit in 2012 are the reason behind this drop for Saskatoon.
• Atlantic Canada remains a highly tax competitive region in Canada with Moncton, Fredericton, St. John's and Halifax rounding out the top five tax competitive cities in the country.
• Quebec City moved up to 9^th place this year primarily due to an innovative property tax provision that rewards owners who improve their properties, thus causing assessed value to increase.  Bio-pharma and e-business incentive enhancements also helped Quebec City secure this spot.

Ranking and total tax index for featured Canadian cities (international and smaller cities)

2014 Rank	City	2014 Total Tax Index		2014 Rank	City	2014 Total Tax Index
1	Edmonton	42.7		9	Quebec City	54.0
2	Moncton	42.9		10	Niagara Region^1	54.4
3	Fredericton	43.0		11	Vancouver	54.5
4	St. John's	43.8		12	Montreal	55.6
5	Halifax	47.9		13	Kamloops	55.8
6	Saskatoon	48.8		14	Winnipeg	55.9
7	Charlottetown	49.5		15	Sudbury	56.8
8	Toronto	51.6

¹ Niagara Regional Municipality

Digital, R&D, Corporate Services and Manufacturing sectors

Despite the ever changing landscape of Canadian industries, Canada's 2014 sector rankings remained strong, consistent with the 2012 Focus on Tax results.

Canada's first-place ranking and low TTI (17.1) in the Digital Services sector is primarily due to significant provincial incentives that provide support to video game producers and other digital media industries. Meanwhile, federal and provincial income tax credits for the R&D sector enable Canada to also remain in first place in that sector. In the Corporate Services sector, Canada ranked second behind the United Kingdom, while Canada ranked second behind Mexico in the Manufacturing sector.

Canada's sector rankings and associated tax cost advantage

Sector	2014 Sector Rank	2014 Sector Tax Index	% tax cost advantage versus US
Digital	1	17.1	82.9%
R&D	1	30.6	69.4%
Corporate Services *	2	69.8	30.2%
Manufacturing	2	65.5	34.5%

*Corporate Services represent front and back office type operations.

QUOTE

"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."

• Elio Luongo, Canadian Managing Partner, Tax, KPMG

LEARN MORE
Competitive Alternatives report
Competitive Alternatives: Focus on Tax
Focus on Tax Canadian regional backgrounder
KPMG Tax
@KPMG_Canada #FocusOnTax
KPMG on LinkedIn

About KPMG's Competitive Alternatives Study: Focus on Tax

Focus on Tax is a supplement to the 2014 Competitive Alternatives report, a biennial global report released in March examining business costs across 10 countries.  Focus on Tax assesses general tax competitiveness in the 107 featured cities and 10 countries and compares various tax rates in each location including: corporate income tax, property taxes, capital taxes, sales taxes, miscellaneous local business taxes and statutory labour costs - all resulting in a Total Tax Index (TTI). 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 2014 Volume II 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 2014 Volume II study report.

To access the full report, please visit www.kpmg.ca/focusontax.

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 155,000 professionals, in 155 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.

 

 

 

Image with caption: "KPMG's Competitive Alternatives 2014: Focus on Tax guide to international business tax costs (CNW Group/KPMG LLP)". Image available at: http://photos.newswire.ca/images/download/20140617_C7294_PHOTO_EN_41436.jpg

SOURCE: KPMG LLP

Briana D'Archi
National Senior Manager, Communications
KPMG in Canada
416.777.8169
[email protected]

Kira Froese
National Manager, Communications
KPMG in Canada
416.777.8928
[email protected]