Global rebalancing of corporate versus indirect tax continues 

• UK’s position on corporate tax rates rises relative to other EU countries, moving from 20th lowest in 2010 to equal 18th in 2011

• But the UK’s position on indirect tax (VAT) relative to other EU countries declines, moving from joint lowest in 2009, to the 3rd lowest in 2010 and now the 8th lowest in 2011 as a result of the changing VAT rate

• And rates are just part of the picture: the lack of tax relief for capital expenditure makes the UK a less competitive place to invest compared to other G20 countries, says KPMG

Corporate tax rates have been steadily falling for a decade, while indirect taxes in the form of value added tax and goods and services tax (VAT/GST) systems have been introduced across the globe, rising to higher rates and applying to more items as indirect tax systems mature, according to KPMG International’s annual Corporate and Indirect Tax Survey.

“Some commentators have wondered if these dual trends were temporary anomalies that would reverse over time,” said Anneli Collins head of tax policy at KPMG in the UK.. “Based on our reading of this year’s survey results, the chance of a return to the pre-2000 status quo is remote and the global re-balancing of corporate and indirect taxes will continue. However, the survey results also suggest that it is certain that the decade-long era of sharply declining corporate tax rates is almost behind us. International businesses should ensure they have the right mix of income tax and VAT/GST management resources in place to stay ahead of the long-term trend.”

The UK’s position relative to its EU peers has improved on corporate tax rates (based on current rates in the new online, interactive tax rate tool available at www.kpmg.com/taxrates ), but declined on indirect tax rates.  Following the reduction in the headline rate of corporate tax to 26 percent  on 1 April 2011, the UK has moved from having the 20th lowest rate in the EU in 2010 and 2009 to the joint 18th in 2011.  But the UK’s indirect tax rate moving up from its temporary rate of 15 percent to 17.5 percent and then to 20 percent has meant that the UK’s relative attractiveness has reduced.  The UK has moved from the lowest position in 2009, to the 3rd lowest in 2010 and now has the 8th lowest indirect tax rate in the EU.

Anneli Collins continued:  “Reducing the UK headline rate of corporate tax has been a welcome move for many businesses and it’s encouraging to see the UK’s position relative to its European competitors improve as a result.  The government has pledged its ambition to have the most competitive tax system in the G20 and there have been encouraging moves in this direction.

“The UK’s position on indirect tax has moved in the opposite direction however and , while this is in line with the global trend we are seeing, it has arguably added to the current inflationary environment and the squeeze that so many households are currently feeling “Looking at the big picture on tax competitiveness, in order to make valid cross country comparisons, we need to dig deeper than headline rates.  A low rate is a superficial indicator of tax competitiveness if the profit base being taxed is a higher number for a business in the UK than in other G20 countries.

“What the UK needs now is economic growth and we are concerned that the UK is among the least generous of all G20 countries to businesses making capital investments because they do not receive tax relief for much of their expenditure*.  This means that the effective rate that they are paying is often higher than in other countries and so they do not benefit from the low headline rates in the same way as other British businesses.  We are worried that this may be affecting prospects of work for our construction industry, growth of manufacturing capability and infrastructure investment in transport and energy.  It would be very welcome if this anomaly were to be addressed in the Autumn Statement later this month.”

The following up to date rates are from the KPMG International new online, interactive tax rate tool available at www.kpmg.com/taxrates, not from the Corporate and Indirect Tax Survey which shows corporate tax rates at 1 March 2011.  

Corporate tax rates in the EU

EU Countries
Ranking 2011	Ranking 2010	Ranking 2009	Country	Corporate tax rate 2011	Corporate tax rate 2010	Corporate Tax rate 2009
=1	=1	=1	Bulgaria	10	10	10
=1	=1	=1	Cyprus	10	10	10
3	3	3	Ireland	12.5	12.5	12.5
=4	=4	4	Latvia	15	15	15
=4	=4	=9	Lithuania	15	15	20
6	6	=5	Romania	16	16	16
=7	=7	=5	Hungary	19	19	16
=7	=7	=7	Poland	19	19	19
=7	=7	=7	Slovak Republic	19	19	19
=7	=7	=9	Czech Republic	19	19	20
=11	11	=11	Slovenia	20	20	21
=11	13	=13	Greece	20	24	25
13	12	=11	Estonia	21	21	21
=14	=14	=13	Austria	25	25	25
=14	=14	=13	Denmark	25	25	25
=14	=14	=13	Portugal	25	25	25
=14	17	17	Netherlands	25	25.5	25.5
=18	18	18	Finland	26	26	26
=18	20	20	United Kingdom	26	28	28
20	19	19	Sweden	26.3	26.3	26.3
21	21	21	Luxembourg	28.8	28.59	28.59
22	22	22	Germany	29.37	29.41	29.44
23	23	23	Spain	30	30	30
24	24	24	Italy	31.4	31.4	31.4
25	25	25	France	33.33	33.33	33.33
26	26	26	Belgium	33.99	33.99	33.99
27	27	27	Malta	35	35	35

Indirect tax rates in the EU

Ranking 2011	Ranking 2010	Ranking 2009	Country	Indirect tax rate 2011	Indirect tax rate 2010	Indirect Tax rate 2009
=1	=1	=1	Cyprus	15	15	15
=1	=1	=1	Luxembourg	15	15	15
=3	=4	4	Spain	18	18	16
=3	=4	=5	Malta	18	18	18
=5	=6	=7	Germany	19	19	19
=5	=6	=7	Netherlands	19	19	19
7	9	14	France	19.6	19.6	19.6
=8	3	=1	United Kingdom	20	17.5	15
=8	=10	=5	Estonia	20	20	18
=8	=6	=7	Slovak Republic	20	19	19
=8	=10	=7	Czech Republic	20	20	19
=8	=10	=15	Austria	20	20	20
=8	=10	=15	Bulgaria	20	20	20
=8	=10	=15	Slovenia	20	20	20
=15	=16	=7	Lithuania	21	21	19
=15	=10	=15	Italy	21	20	20
=15	=16	=21	Belgium	21	21	21
=15	=16	23	Ireland	21	21	21.5
19	=16	=21	Latvia	22	21	21
=20	=22	=7	Greece	23	23	19
=20	=16	=15	Portugal	23	21	20
=20	21	=24	Poland	23	22	22
=20	=22	=24	Finland	23	23	22
24	24	=7	Romania	24	24	19
=25	=25	=15	Hungary	25	25	20
=25	=25	=26	Denmark	25	25	25
=25	=25	=26	Sweden	25	25	25

Global trends: Corporate tax**

According to the KPMG survey, the world’s average corporate tax rate has fallen in each of the past 11 years, from 29.03 percent in 2000 to 22.96 percent in 2011.

Regionally we see that:

• The Asia Pacific Region average rate went from 23.96 percent in 2010 to 22.78 percent in 2011;
• The Latin America region went from 25.33 percent in 2010 to 25.06 percent in 2011;
• North America went from 23.67 percent in 2010 to 22.77 percent in 2011;
• Oceania went from 24.17 percent in 2010 to 23.83 percent in 2011;
• Europe was the only region where we saw a slight increase – from 19.98 percent in 2010 to 20.12 percent in 2011; and
• The Africa Region remained flat.

Global trends: Indirect tax**

Average indirect tax rates at the global level have been stable, hovering at or near the 2011 average of 15.41 percent for the past three years. Excluding the countries that do not charge VAT/GST, we found:

• The Africa region saw its average VAT/GST rate rise from 13.91 percent in 2010 to 14.17 percent in 2011, while the average rate in Asia rose from 11.64 percent in 2010 to 11.73 percent in 2011.
• Oceania’s average rose from 12 percent in 2010 to 12.5 percent in 2011.
• Europe saw its average VAT rate rise slightly, from 19.67 in 2010 to 19.71 percent in 2011
• Latin America also dropped from 13.90 percent in 2010 to 12.78 percent in 2011.

Gary Harley, head of indirect tax at KPMG in the UK, said: “Governments are increasing their reliance on VAT/GST systems for economically sound reasons.  Compared to income taxes, VATs are less affected by economic ups and downs; they are a tax on consumption not investment, a tax on sales not profits, they are real time and and have a low-cost of collection.  Clearly many governments see indirect taxes as a crucial way to raise revenues to tackle deficit reductions in the current difficult economic times.”

New online interactive tax rate tool launched

KPMG International also released today a new online, interactive tax rate tool available at www.kpmg.com/taxrates.  

The new online rate tool allows users to view and compare the latest corporate and indirect tax rates from across the globe. Currently with the new tool, users can:

• Compare a particular tax rate (e.g. corporate tax) between up to five countries.
• Choose the years that you want to compare.
• View the corporate and indirect tax rates for a particular country.

Notes for editors

KPMG International’s annual Corporate and Indirect Tax Survey is available here:  http://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/Pages/corporate-indirect-tax-rate-survey-2011.aspx

* http://www.sbs.ox.ac.uk/centres/tax/Documents/reports/G20_Corporate_Tax_Ranking_2011.pdf

**NB: Information is current as of time of printing and the report and data presented is intended only to be a snapshot in a particular time frame. Changes to rate information following 1 March 2011 for corporate tax and October 1 for indirect tax, will be reflected in future annual reports. For the latest rates please visit the new online rate tool www.kpmg.com/taxrates.  

-Ends-

For further information please contact:

Margot Cowhig, KPMG Corporate Communications

Tel:  0207 694 4246 Mobile: 07920 274856: margot.cowhig@kpmg.co.uk

KPMG Press Office: 0207 694 8773

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