As Canadians, we often gripe and complain about our tax system. But if we look at the bigger picture, clearly Canada is doing a lot of things right and, as we learned last week in the wake the Burger King/Tim Horton’s merger, the U.S. could learn a few lessons in tax policy from us.
First, let’s take a look at our corporate tax system. While Burger King executives claimed that the “transaction is not really about taxes,” the $12.5-billion takeover of Tim Horton’s has further fuelled the debate going on south of the border about corporate tax inversions. It’s a hot topic in the U.S. right now, but one we have traditionally heard little about in Canada.
And for good reason — it’s simply never been an issue for Canadian companies. An unfamiliar term for most Canadians until this week, corporate inversions are a U.S. phenomenon, as some U.S. companies with significant global operations and profits seek to merge with a foreign corporation, and, in so doing, move the headquarters of the merged corporation to that foreign, lower-taxed jurisdiction.
This achieves two objectives: a lower corporate tax rate and, more significantly, the avoidance of U.S. tax on repatriated earnings.
According to KPMG’s recently published “Corporate and Indirect Tax Rate Survey 2014,” the U.S.’s combined federal and state corporate tax rate of 40% is the highest in the world next to the United Arab Emirates’ rate (55%), although a footnote is quick to add that “having the highest statutory rate does not mean that the tax is actually levied.”
The United States is the only country (other that Eritrea) that taxes its citizens on their worldwide income no matter where they live
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