Government Moves Away from New Rules on Corporate Group Taxation in Federal Budget

New research from Grant Thornton says 82% of Canadian businesses would not locate to another country for any level of reduction in the corporate tax rate

TORONTO--(BUSINESS WIRE)--Yesterday, Canadian Finance Minister, the Honourable James M. Flaherty, presented his ninth budget, the second budget of the Conservative majority government. In this uncertain environment, the government’s focus is clear: jobs and the economy. Economic Action Plan 2013 builds on the foundation laid last year with measures to create jobs, promote growth and support long-term prosperity. Several measures, in particular, are intended to assist the struggling manufacturing sector.

“The ongoing efforts of the Canadian government to keep corporate tax rates low is clearly having an impact on the retention of businesses”

Previous budgets had noted the government’s interest in exploring the issue of whether new rules for the taxation of corporate groups—such as the introduction of a formal system of loss transfers or consolidated reporting—could improve the functioning of the corporate tax system in Canada. Following extensive public consultations, the government has concluded that moving to a formal system of corporate group taxation is not a priority at this time.

This direction is not surprising, according to a new global survey that says 82% of Canadians businesses would not consider moving abroad for a lower corporate tax rate. By comparison, the global survey of more than 3,400 businesses in 44 economies finds that 67% would not relocate their business to another country for any level of reduction in their corporate tax rate.

“The ongoing efforts of the Canadian government to keep corporate tax rates low is clearly having an impact on the retention of businesses,” says Gary Dent, National Leader, Tax, Grant Thornton LLP in Canada. “International corporations are always looking at how they can manage their effective tax rates, which means a single change in one place isn't always enough of a push or a pull. In Canada, we’ve also got the draw of a stable financial system, easy access to finance, and effective tax measures—a good combination of factors. I am not surprised that the government has decided that new tax rules for business are not a priority in this budget.”

Business leaders in New Zealand are the most resistant to relocation—94% say they would not move abroad for a lower corporate tax rate. They are followed by Georgia (92%), Switzerland (90%), France (88%), Germany (87%) and Ireland (86%). The economies in which the most businesses would move for a lower rate are Russia, India, Taiwan, Greece, Botswana and Norway.

In Canada, 57% of businesses surveyed said they were in favour of lowering the corporate tax rate, even if it meant eliminating some current tax deductions. This is significantly lower than the global rate of 68%, and 81% in US. Support was greatest in Vietnam (94%), Lithuania (92%), Malaysia (92%), Peru (90%), Greece (88%), Mexico (82%) and India (81%).

Nearly half (49%) of Canadian business leaders surveyed say the government is definitely doing enough with tax measures to help ease economic pressures. This stands in stark contrast to the global figures, where 61% did not think their government was doing enough with tax measures to help ease economic pressures. The countries with the highest dissatisfaction were Argentina (92%), Japan (86%), Poland (82%), Spain (82%), Latvia (78%), Australia (77%) and Denmark (76%).

“Our research shows that Canadian business leaders seem to be happy with tax measures afforded to business, but these measures also bring a level of complexity to Canadian taxation,” says Dent. “Many of our clients feel the system is too complicated and should be simplified—something the government has unfortunately put on the back burner for now.”

Attention media

Gary Dent, National Leader, Tax, Grant Thornton LLP is available for interviews. Grant Thornton also has local tax practitioners in cities across Canada available to talk about the 2013 federal budget.

Notes to editors

The Grant Thornton International Business Report (IBR) provides insight into the views and expectations of more than 12,500 businesses per year across 44 economies. This unique survey draws upon 21 years of trend data for most European participants and 10 years for many non-European economies. For more information, please visit: www.internationalbusinessreport.com

Data collection

Data collection is managed by Grant Thornton International's core research partner, Experian. Questionnaires are translated into local languages with each participating country having the option to ask a small number of country specific questions in addition to the core questionnaire. Fieldwork is undertaken on a quarterly basis. The research is carried out primarily by telephone.

Sample

IBR is a survey of both listed and privately held businesses. The data for this release are drawn from interviews with 3,450 chief executive officers, managing directors, chairmen or other senior executives from all industry sectors conducted in November/December 2012.

About Grant Thornton LLP

Grant Thornton LLP is a leading Canadian accounting and advisory firm providing audit, tax and advisory services to private and public organizations. We help dynamic organizations unlock their potential for growth by providing meaningful, actionable advice through a broad range of services. Together with the Quebec firm Raymond Chabot Grant Thornton LLP, Grant Thornton in Canada has approximately 4,000 people in offices across Canada. Grant Thornton LLP is a Canadian member of Grant Thornton International Ltd, whose member firms operate in close to 100 countries worldwide.

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