KPMG’s Corporate Tax Rates Survey 2006
Tuesday, 11 April 2006
KPMG’s Corporate Tax Rates Survey 2006
KPMG’s International Tax Centre has released its global survey of corporate income tax rates. The survey covers 86 countries. Following recent trends, the overwhelming majority of countries that have changed their income tax rates over the past 12 months have cut them.
The comparisons are interesting in light of the business tax review currently being undertaken in New Zealand and increased calls for tax cuts in the context of that review.
Brahma Sharma, KPMG’s Senior Tax Partner, said that New Zealand is falling further behind its neighbours and competitors for foreign investment with its unchanged rate of 33%. The 33% rate is well above average rates in the Asia-Pacific region and for OECD countries. The average rate in the Asia-Pacific region is 29.99% and the OECD average rate has fallen from 28.55% to 28.31%. Rate reductions were most pronounced in Europe, where the average statutory corporate income tax rate fell from 25.32% to 25.04%.
The most relevant rate from New Zealand’s perspective is the Australian rate which is currently 30%. A study has recently been undertaken in Australia to benchmark Australia’s tax system with other developed countries. This study demonstrates a continued focus on taxation levels and rates in Australia. If as a result of this review Australia lowers its corporate tax rate further, there will be even more of an argument for New Zealand to follow suit.
The KPMG study stresses that headline tax rates are not the only considerations for companies seeking low tax jurisdictions. A low tax rate does not necessarily mean a low tax burden. Effective tax rates and the general “business friendliness” of a country’s tax environment are also significant factors.
In releasing the survey, the Global head of KPMG’s tax practice Loughlin Hickey said that “effective tax burdens can vary significantly depending on the attitude of governments and their tax authorities to corporate taxpayers, ranging from aggressive policing to actively promoting business collaboration. Clarity and certainty in the application of tax laws is a rare, but much prized commodity.”
“As tax competition progressively erodes differences in rates, these factors are likely to grow in importance. One of the keys to tax competitiveness could become the relative business friendliness of a nation’s tax environment.”
Mr Sharma said that this makes it increasingly important for New Zealand to lower the corporate tax rate. “New Zealand has advantages in terms of its tax system and general business environment. These advantages could be lost if New Zealand maintains its rate in an environment of declining rates internationally. On the other hand, if New Zealand were to lower the corporate rate, it would be in a stronger position to compete with other countries for foreign investment.”
New Zealand-based businesses are also calling for tax cuts to improve productivity and growth. Given that the stated aim of the business tax review currently underway is to provide better incentives for productivity gains and improved competitiveness with Australia, Mr Sharma hopes that the review will deliver on the fundamental issue of tax cuts for corporate taxpayers.
Note to editors
KPMG International’s Corporate Tax Rates Survey has been run every year since 1993. It now covers 86 countries, including the 30 member countries of the OECD, the 25 EU countries, 19 countries in the Asia Pacific Region and 19 countries in the Latin America Region. Tax professionals from across KPMG’s global network of member firms have contributed to the survey.
This year’s survey compares corporate income tax rates as at 1 January 2006 with their equivalent as at 1 January 2005.
The five EU countries which have reduced their rates are the Czech Republic (-2 to 24 percent), Estonia (-1 to 23 percent), France (-0.5 to 33.33 percent), Greece (-2 and -3 percent to 22 and 29 percent depending on the type of company; these rates are expected to drop in 2007 to 25 and 20 percent respectively), Luxembourg (-0.75 to 29.63 percent) and the Netherlands (-1.5 and -1.9 percent to 25.5 percent on the first E 22,689 of profits and 29.6 percent thereafter; this is due to fall in 2007 to 24.5 percent and 29.1 percent respectively.)