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Canada tops global business tax environment: KPMG [INFOGRAPHIC]

Toronto, Vancouver and Montreal lead international cities for tax competitiveness


TORONTO — Canada remains the most tax competitive country for business globally due to low effective corporate income tax policy combined with moderate statuatory labour costs and harmonized sales taxes, according to KPMG’s Competitive Alternatives 2014: Focus on Tax report.

The UK 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.

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).

KPMG's Competitive Alternatives 2014: Focus on Tax guide to international business tax costs. GRAPHIC: KPMG LLP

(CLICK TO ENLARGE) KPMG’s Competitive Alternatives 2014: Focus on Tax guide to international business tax costs. GRAPHIC: KPMG LLP

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 – Canada’s largest city ranked fifth or higher in each sector, but didn’t rank first in any single sector, which shows Toronto’s consistency in 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% to 11%, 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.

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 2nd place in 2012 due to the former tax leader, Saskatoon, dropping to 6th 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.

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 UK, while Canada ranked second behind Mexico in the manufacturing sector.

Canada’s sector rankings and associated tax cost advantage

Sector2014 Rank2014 Tax Index% tax cost advantage vs US
Digital117.182.9%
R&D130.669.4%
Corporate Services269.830.2%
Manufacturing269.834.5%

Download a copy of the report here.

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