KPMG International recently published the results of the Corporate and Indirect tax rate survey of 2008. The survey covers 106 countries, including 30 OECD member countries and all 27 EU members. Tax havens like Mauritius, United Arab Emirates, and the Cayman Islands were also included, although far from all of them.
The survey resulted in some remarkable results. The positive effects of globalization and tax competition among jurisdictions resulted that for once after 24 years, not one of the 106 countries covered by the survey has raised its main corporate tax rate.
The global average is down nearly a full point to 25.9 percent with the EU average down to 23.2 percent, the Latin American rate down half a point to 26.6 percent, and the Asia Pacific rate down 0.8 percent to 28.4 percent.
However as a result of the lower tax rate, governments widen the tax base and improve enforcement.
Specifically the transfer pricing legislation has been toughened worldwide. Countries who are forced to reduce their tax rate in order to compete with other jurisdictions, try to protect the tax base which is left as much as possible.
One notable example is India, which insist on assigning high profits margins to Indian operations, because they believe that location savings generate significantly higher operating profits than companies would earn if they were based in another country.
Another interesting finding of the survey was the increasing value of the Indirect Tax system. More countries are introducing Vat legislation, for example United Arab Emirates, and governments spend more attention to the protection of the Indirect Tax Base.
Germany has raised its VAT from 16 percent to 19 percent in 2007, to compensate the reducing of the corporate tax rate by almost 10 percent.
KPMG’s Global Indirect Tax practice concluded earlier in the year, that errors in VAT compliance are now a bigger concern for them than errors in corporate tax.
Finally , KPMG noted that there is an obvious tension between the undoubted economic benefits to all of more efficient supply chains and freer trade, and the need for governments to secure their revenues.
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