Canada is a Tax-Friendly Country

It is gratifying to report that Canada has the lowest business taxes of all the G7 countries, which include: Canada, France, Germany, Italy, Japan, the United Kingdom and the United States.

According to a KPMG special report on tax included in its Competitive Alternatives 2010, Canada has the second-lowest tax costs for business, only second to Mexico, which ranks No. 1. Canada has moved up from No. 3 since the last rankings were formulated in 2008.

The report assesses the general tax competitiveness of 95 cities in 10 countries (Australia, Canada, France, Germany, Italy, Japan, Mexico, the Netherlands, the United Kingdom, and the United States). The analysis focuses on 41 major cities with populations greater than 2 million, and compares the total tax burden faced by companies, including income tax, capital tax, sales tax, property tax, miscellaneous local business taxes, and statutory labor costs.

The report also compares the total tax cost between countries and cities using a Total Tax Index (TTI) score for each location, expressed as a percentage of total taxes paid by corporations in the US. A lower score is better since it means lower tax costs for businesses.

Among the countries studied, Mexico has the lowest TTI at 59.9; in other words, total tax costs in Mexico are 40.1 percent lower than in the US, which has a TTI of 100.0. Canada has a TTI of 63.9. The Netherlands, Australia, and the UK also have TTI ratings below the US. At the other end of the spectrum, France’s TTI of 181.4 signifies that its total tax costs are 81.4 percent higher than the US standard.

Tax Competitiveness — 2010 and 2008 Rankings by Country

Rank	Country	Total Tax Index 2010	2008 Rank
1	Mexico	59.9	1
2	Canada	63.9	3
3	Netherlands	76.4	2
4	Australia	80.8	4
5	United Kingdom	88.0	6
6	United States	100.0	5
7	Germany	124.1	8
8	Italy	129.6	9
9	Japan	138.0	7
10	France	181.4	10

(Source: KPMG's Competitive Alternatives 2010, Special Report: Focus On Tax)

The TTI rankings of countries in 2010 are generally consistent with the 2008 rankings. Canada has moved ahead of the Netherlands, and the UK has moved ahead of the United States — although, these pairs of countries were very closely grouped in 2008, such that marginal changes in TTI have resulted in changes in rankings.

The report also compares tax costs between industries and these vary widely. Canada ranks No. 2 in manufacturing with a score of 67.7, compared to a score of 100 for the U.S., with Vancouver, Toronto and Montreal placing in the top five cities. For the corporate IT sector, Canada comes in second, behind Mexico, and again the three major Canadian cities studied place in the top five. R&D sector tax costs vary significantly over other sectors, mainly due to the impact of tax incentives targeted to foster R&D activity. Montreal ranks high in R&D, reflecting Quebec’s commitment to R&D development. In the R&D sector, Canada ranks second after Australia.

Among the major international cities compared for tax competitiveness, Vancouver takes first place, Montreal fourth and Toronto fifth. The second and third-ranked cities are located in Mexico.

Any questions concerning the above should be directed to John Dow, Tax Partner — jdow@sbpartners.ca or (905) 632-5978.

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