Corporate 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, while the global trend seems to be stable or declining corporate tax rates, KPMG’s latest global corporate tax rates survey has shown.
According to Mike Glover, head of the KPMG tax advisory group in Hungary, while tax competition erodes differences in rates, Hungary’s 16% corporate tax rate remains comfortably below the EU average. In the future, however, factors such as the business friendliness of a nation’s tax environment are likely to grow in importance in tax competitiveness, he said.
“A low tax rate does not necessarily mean a low tax burden. 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,” he explained.
The KPMG international survey shows that the average corporate tax rates in the EU fell by 0.28% to 25.04% in 2005, compared with average rates of 28.31% for the OECD countries, 28.25% for Latin America and 29.99% in the Asia Pacific region. The countries with the highest tax rates were Japan with 40.69% and the United States with 40%.
The EU’s declining average tax rate is a result of rate cuts in six EU member states, including the Czech Republic, Estonia, France, Greece, the Netherlands and Luxembourg. 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, the KPMG survey reveals.