While Kevin O’Leary of the Lang and O’Leary Exchange may always grumble about Canada’s corporate tax rate being too high, we’re actually ranked among the best in tax stability. Canada’s tax system was ranked an impressive eighth in the world, according to an annual study by PricewaterhouseCoopers and the World Bank. In fact, we ranked ahead of southern neighbours, the United States and Mexico, and fellow G8 countries, the U.K., France, and Germany.
However, while we may be doing well on the tax stability front, Canada has a way to go when it comes to tax structure. The Canadian tax structure is considered subpar; it’s outdated and vulnerable to multinationals who use tax loopholes to their advantage, according to the OECD (Organization for Economic Co-operation and Development).
The Good: Tax Stability
Canada is open for business – that’s the clear message we’re sending to foreign firms considering setting up shop in the Great White North. Not only do we offer stability with our corporate tax policies, our tax competitiveness and business-friendly environment make us one of the most sought-after destinations to expand or start up a business. Not to mention we’re a stone’s throw away from the U.S. – over 90 per cent of Canadians live within 100 miles of the U.S. border, making us a desirable locale for corporations eying a U.S. expansion.
The federal government has undertaken a number of measures to make Canada the go-to place to foreign expansion. The Conservatives have slashed corporate taxes from 22 per cent to 15 per cent in six years ago. The Harper government recently announced plans to freeze employer employment insurance rates until 2016. In times of economic uncertainty when businesses are looking to de-risk and cut costs, measures like these help make Canada appear favourable on the world stage.
The Bad: Tax Structure
Big multinational firms like Apple and Google have been in the spotlight recently for not paying their fair share of taxes. While our tax structure is relatively stable, we could be doing a better job of exchanging tax information to catch firms taking advantage of tax loopholes. There is a fine line between tax evasion and tax avoidance – these “grey areas” can leave corporations open to financial and legal risks.
So what’s the solution? According to the OECD, the Canadian government should continue to pursue tax treaties with our biggest trading partners, which will better enable us to catch corporations looking to shift corporate profits offshore. Similar to our copyright laws which seem to be trapped in the Stone Age, corporate tax structure needs to evolve with the times. No longer is business confined by borders – with the globalization of business and the emergence of e-commerce, it’s harder than ever to track multinational profits worldwide. We need to do a better job of tracking businesses who try to move profits to the lowest taxes jurisdiction.
Corporate Taxes Benefit All Canadians
With the federal government predicting a balanced budget by 2015, modernizing our tax structure will help us balance the books that much sooner. From job creation to economic growth and prosperity, corporations play a critical role in the Canadian economy. Our telecommunications sector has failed to attract foreign investment due to unstable government policy. By offering tax policies and structure that is fair and predictable, Canada should continue to rank among the elite for foreign expansion by big business for the years to come.