July 29, 2008 / 12:08 AM / 9 years ago

Canada seen more tax-friendly to business than U.S.

TORONTO (Reuters) - Canada's tax system is more business-friendly than the tax regimes in many other countries, including the United States, despite the country's long-held reputation to the contrary, according to a report released on Monday.

Canada has the third-lowest business tax costs among 10 countries, trailing Mexico and Netherlands, but beating out the United States and Britain, among others, the report said.

"Whenever we talk about how Canada is in a higher tax jurisdiction than the United States, it's focused on the individual tax," said Greg Wiebe, Canadian managing partner of tax at KPMG, the international accounting firm that issued the report.

"But from a corporate perspective, we're actually very competitive with the United States and we have been for a number of years now," he said.

KPMG's report compared the tax competitiveness of 102 cities in 10 countries, focusing on a range of factors, including income tax, capital tax, sales tax, property tax, miscellaneous local business taxes and statutory labor costs.

Toronto, Vancouver and Montreal ranked among the top 10 global cities with the lowest business tax costs.

Canada's gradual elimination of capital and payroll taxes over the years has boded well for the country's corporate competitiveness, and it will likely get better if Canadian Finance Minister Jim Flaherty succeeds in bringing the blended corporate tax rate to 25 percent by 2012, Wiebe said.

Flaherty has long pushed for provinces to cut their corporate tax rate to 10 percent and for the federal tax rate to be reduced to 15 percent. Currently, the federal tax rate alone is 20.5 percent.

The report compared the total tax cost between countries and cities using a "total tax index" score expressed as a percentage of total taxes paid by corporations in the U.S.

By that measure, lower scores indicate lower tax costs for businesses. Toronto's 85.4 score compared favorably to scores for New York (109.2) and Philadelphia (101.9).

Likewise, Vancouver scored 75.2 compared to Seattle, at 107.1.

"Our tax burden is a lot lower than comparable cities across the border and hopefully if businesses are looking to expand globally, they may give Canada a more detailed look," Wiebe said.

Cities in Mexico and Puerto Rico offered the lowest tax environment.

Reporting by Lara Hertel; Editing by Frank McGurty

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