Canada cracks top 10 for corporate tax competitiveness

Reductions to federal and provincial corporate tax rates and reduced rep tape have improved Canada’s standing.

OTTAWA—Canada has moved up three places to eighth in a global comparison of the most advantageous place to pay corporate taxes—it’s first time in the top 10.

The Paying Taxes 2013 study by PwC, in conjunction with the World Bank and the International Finance Corporation, shows Canada has moved up sharply in a 185-country comparison.

One of the biggest reasons for Canada’s top 10 position is the country’s competitive Total Tax Rate (TTR), which has dropped from 49.1% in 2004 to 26.9% in 2011.

As recently as 2010, Canada placed 28th but continuing reductions of federal and provincial corporate tax rates, and reduced rep tape, has improved the country’s standing dramatically.

The advance coincides with the federal government’s efforts to brand a 25% national corporate tax rate, harmonized sales taxes in Ontario and making it easier to file taxes.

“As far as most countries are concerned, we’re actually a pretty friendly jurisdiction,” said Jason Safar, a partner with PwC’s tax service in Toronto. “Canada’s current tax laws have attractive tax regimes, which impact all companies—in particularly small-medium sized domestic companies.”

The PwC comparison looks at three specific metrics—tax rates, the average number of hours businesses devote to paying taxes each year, and how many times a year they must file. The latter two relate to the ease of operating in the country, and PwC says it is more important than many believe.

“The economic analysis to compare the paying taxes indicators with gross domestic product and foreign direct investment suggests that while higher business taxation can be linked to slower economic growth and international investment, reducing the administrative burden and complexity of the tax system can potentially be linked to a greater change in overall growth,” the report says.

Africa and South America score poorly on the measures, while North America is near the top of the class.

PwC said it took on average 131 hours for a typical Canadian company to comply with its annual tax obligations, just over half the global average. As well, while a typical Canadian firm makes six payments a year, the world average is 27.

In the overall comparison, the United Arab Emigrates, Qatar and Saudi Arabia place in the top three. Ireland, at six, is the only other designated industrial country in the top 10.

Among Canada’s direct economic competitors, the UK scores the closest at number 16, followed by France at 53, the US, 69, Germany 72, Japan, 127 and Italy, 131.

Canada’s total average tax rate on medium-sized domestic companies is listed as 26.9%, the UK’s at 35.5% and the US at 46.7%.

Canada is also well ahead of the BRIC economies, where China and India placed 122nd and 152nd respectively for overall ease of paying taxes. Brazil has the highest TTR amongst the BRIC nations at 69.3%.

Paying Taxes 2013: Global average (185 economies)

IndicatorsGlobal AverageCanada
Number of tax payments27.28
Number of hours to comply with tax affairs267 hours131 hours
Tax costs of commercial profits44.7%26.9%

Canada’s 8th place ranking also makes it the easiest country to pay taxes amongst the G8 nations based on the number of tax payments, the time it takes to comply and its TTR.

Paying Taxes 2013 Rankings: Some of the G8 nations

Total Tax Rate
United Kingdom16835.5%
United States691146.7%

Click here to read a full version of the Paying Taxes 2013 report.