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  • Type: Press release
  • Date: 9/25/2012

Canada among the top in the world for tax competitiveness 

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

Toronto, September 25, 2012— 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 US. The United States 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

 

1

Saskatoon

43.8

 

2

Edmonton

44.2

 

3

Moncton

45.1

 

4

St. John’s

45.4

 

5

Fredericton

45.5

 

6

Vancouver

49.2

 

7

Halifax

49.4

 

8

Calgary

50.7

 

2012 Rank

City

 

2012 Total Tax Index

 

9

Trois-Rivières

53.8

 

10

Prince George

54.2

 

11

Charlottetown

54.4

 

12

Winnipeg

54.7

 

13

Toronto

56.0

 

14

Windsor-Essex

56.8

 

15

Montréal

62.1

 

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.

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

 

 Contact Us

Elio R. Luongo

Elio R. Luongo

Managing Partner, Greater Vancouver Area

604-691-3281

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