EU leads world in race to cut company tax, says KPMG International survey; Average corporate tax rates in the EU fell to 25.04% in 2005

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EU leads world in race to cut company tax, says KPMG International survey; Average corporate tax rates in the EU fell to 25.04% in 2005
By Finfacts Team
Apr 6, 2006, 14:22

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Company tax rates across Europe are being driven steadily down by a combination of competition amongst EU member states for jobs and capital, and economic liberalization, KPMG International’s latest global corporate tax rates survey has shown.

Average corporate tax rates in the EU fell by 0.28 percent to 25.04 percent in 2005, thanks to rate cuts in six EU member states including France, Greece and the Netherlands. This compared with average rates of 28.31 percent for the OECD countries, 28.25 percent for Latin America and 29.99 percent in the Asia Pacific region. In the UK, the rate was unchanged at 30 percent.

The countries with the highest tax rates were Japan with 40.69 percent and the United States with 40 percent. Lowest was the Cayman Islands with a corporate tax rate of 0 percent.

Of the 86 countries surveyed, the majority had either kept their tax rates unchanged since 2004, or had reduced them. The largest reductions were in Barbados (-5 percent to 25 percent), Albania (-3 percent to 20 percent), Israel (-3 percent to 31 percent) and India (- 2.9 percent to 33.66 percent).

Countries reporting significant increases were the Dominican Republic (+5 percent to 30 percent) and the Philippines (+3 percent to 35 per cent).

Source: KPMG’s Corporate Tax Rate Survey 2006 - Footnotes in respect of each country can be found in report. Download from bottom of page.

Global head of KPMG’s Tax practice Loughlin Hickey said, “The accession of 10 new members to the EU in 2004, and the continuing efforts of the EU judicial system to break down barriers to free movement of capital, seem to have combined to increase tax competition among EU member states. There is a clear contrast with other parts of the world where borders are less permeable, but even so, the global trend seems to be stable or declining tax rates.”

Source: KPMG’s Corporate Tax Rate Survey 2006 - Footnotes in respect of each country can be found in report. Download from bottom of page.

But Mr. Hickey stressed that headline tax rates are not the only factor affecting the corporate tax bill. “A low tax rate does not necessarily mean a low tax burden,” he said.

“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.”

Download report.