It takes more than low taxes to attract most companies
A low corporate tax rate alone is not enough for a majority of companies to pull up stakes and relocate their business to another country, research by Grant Thornton International suggests.
Sixty-seven per cent of global businesses said they would not move to another country for any level of reduction in their corporate tax rate, according to a Grant Thornton International survey of more than 3,400 businesses. The companies most resistant were in New Zealand (94%), Georgia (92%), Switzerland (90%), France (88%) and Germany (87%).
A majority of companies favoured lowering the corporate tax rate in their own country. Sixty-eight per cent supported a domestic tax break, even if that meant fewer tax deductions.
“Simple headline rates are only part of the story,” Francesca Lagerberg, incoming global leader of tax at Grant Thornton International, said in a report about the survey findings.
Tax incentives have long been an important tool of economic developers trying to attract new employers from another state or country. And they are effective, according to an annual survey Area Development magazine conducts with corporate executives. In the most recent results published, 67% of respondents considered tax credits and exemptions most important in making a location decision, ahead of cash grants and other incentives.
Some countries have been trying to look more attractive to foreign investors by making it easier to pay taxes and by lightening the tax burden on small and mid-size companies, according to research by the World Bank and accountancy firm PwC. Middle Eastern and Southeast Asian countries offered the most attractive conditions.
But moving an existing operation is a complicated undertaking with financial and operational implications, said Jeffrey Schad, CPA, CGMA, vice president of global finance at Osborn International, which manufactures industrial brushes.
“You have to understand the impact on your value chain to the customer, and potentially on the supply chain as well. Internal personnel issues are probably the most difficult to deal with,” he said. “It is unlikely that the tax savings would justify such a move unless the profits are huge relative to the personnel involved.”
While a low official corporate tax rate alone may not be enough for companies to relocate, Grant Thornton International suggested companies would appreciate any changes that simplify paying taxes and increased cooperation between countries to provide clarity on global tax issues.
“What matters to most corporates who operate internationally is how they can manage their effective tax rates so a single change in one place isn’t always enough of a push or a pull,” Lagerberg said in the Grant Thornton International report.
Related CGMA Magazine content:
“Corporate Tax Burden Shifting to Indirect Taxes”: Corporate tax rates have decreased worldwide in the past six years to help countries attract investment, but indirect taxes are on the rise. So are tax audits and penalties as a source of revenue. Find out the six tax trends companies are likely to encounter worldwide.
“The Countries With the Most Business-Friendly Taxes”: In the past eight years, paying taxes has become easier and the tax burden lighter for many small and mid-size companies around the world, according to research by the World Bank and PwC. Find out which countries have the lowest tax rates and the least compliance hassles.
“OECD Wants Corporate Tax Reform to Receive International Attention”: A study the Organisation for Economic Co-operation and Development conducted at the request of the G20 finance ministers found that some multinational companies pay as little as 5% in corporate taxes whereas smaller businesses pay up to 30%.
—Sabine Vollmer (svollmer@aicpa.org) is a CGMA Magazine senior editor.