Corporate taxes

Average global corporation tax rates declined slightly year on year in 2012, reports the annual KPMG Corporate and Indirect Tax Rate Survey.

The average global indirect tax rate increased by 0.17% to 15.5% during 2012 while the corporation tax rate average declined slightly by 0.09% to 24.4% over the year.

Chris Morgan, head of tax policy at KPMG in the UK, says: ‘The movements mirror the trends seen in past years. Indirect tax rates around the world are rising as governments look to increase revenue. However, governments are less willing to raise direct tax rates due to the need to attract and keep investment.

‘The UK has been bolder than the global trend in terms of reducing its corporation tax rate. The government reasserted its commitment to making the British tax system the most competitive in the G20 with the Chancellor’s announcement in December 2012 of a staged reduction in the corporation tax rate from 24% to 23% this April and then to 21% in 2014.’ The average corporation tax rate in Europe is 20.5%, down 0.38% year on year. By contrast, in the US the rate is 40%.

One of the key indirect tax increases in 2012 was the introduction of a VAT Pilot Program in Shanghai and its subsequent extension into 10 further provincial-level regions across China.

Mexico, Sweden and Ecuador all plan to reduce corporation tax rates in 2013, but this does not point towards any move towards abolition of the tax. ‘Corporate tax and the way in which it operates internationally is the subject of much debate here in the UK. However, it will never be abolished or abandoned,’ says Morgan.

‘Profits will always be taxed. That is what governments and the general public want. But with business being global and taxes being levied on a country-by-country basis more discussions will arise on how profits are “allocated” to various jurisdictions. What is crucial is that this debate happens in an informed and transparent manner.’

A changing public appetite for accountability also means that increasingly companies need to consider their reputation and risk management exposure when planning tax policy.

KPMG has a useful online tool to compare worldwide corporate, indirect and individual income tax rates at www.kpmg.com/taxrates.

The full report is available from KPMG.