·
Would-be
Chinese and American multinationals held back by tax policy
The USA and Japan are falling behind Europe and China in the race to
capitalise on globalisation and could miss out on future economic growth as a
result, according to a new study by UHY, the international accounting and
consultancy network.
UHY taxation and business advisory professionals in 27 countries rated
their economies on several factors including taxation and trade policy, that
indicate how internationalised an economy already is and how well positioned it
is to take advantage of future globalisation of trade.
The factors examined in UHY’s study included; how successful a country
has been in negotiating favourable tax arrangements with potential trading
partners, how successful it has been in growing exports, how important a part
trade already plays in its economy, how much tax it imposes on companies
‘repatriating’ overseas profits, how it is rated in the World Bank’s ‘Ease of
Doing Business’ survey, and labour costs.
Assessed on these factors, the USA and Japan with scores of 3.7 and 3.0
respectively were surprisingly far behind both China, with its score of 4.6,
and the EU member states, with an average score of 5.2 out of a maximum of 10.
While the USA and Japan both did well on their ‘Ease of Doing Business’
rating, their economies still remain more aligned to domestic activity than
many of their competitors. UHY explains
that this means companies in these countries are not fully exposed to
international competition, which may make them less effective internationally. Additionally, both countries also had low
scores for the factors measuring their success in negotiating favourable tax
treatment by trading partners.
Germany topped the ratings with a score of 6.4 out of ten, while Slovakia
was not far behind on 6.3 points. China
was the best performing of the world’s top 3 economies with a score of 4.6, and
India was the best-performing BRIC with a score of 5.1, helped by its low labour
costs with an average monthly salary less than half as high as China’s.
Ladislav Hornan, chairman of UHY commented: “While both Japan and the USA
still have huge domestic economies to help generate growth, making a more
concerted effort to open themselves up to global trade and global competition
could pay dividends in the future. Japan
in particular is very conscious of the need to revive its economy after the
lost decade has drifted into two decades.”
“Japan was once seen as having an unassailable lead in consumer
electronics and a level of high-tech expertise that outweighed relatively high
labour costs. No longer: Korean and
Taiwanese giants like Samsung, LG and Foxconn now dominate that industry.”
Rick David of UHY LLP, member of UHY in the USA, stated: “In the past
Canada, Mexico, Japan and the EU have been some of our most important and most
co-operative trading partners, but it is perhaps time for policy makers to look
at how we can improve relationships with emerging economies in Africa and
Southern and South East Asia that are going to become bigger consumers and
bigger importers as their incomes grow.”
Akira Wakatsuki of UHY Tokyo & Co and member of UHY in Japan,
comments “So far, one of the centre pieces of recent Japanese economic policy -
the devaluation of the Yen – has only had a limited impact on exports. It may be that domestic structural reforms
and Japan’s intention to open up more to free trade through its participation
in talks on the Trans-Pacific Partnership (TPP) are ultimately more successful
in helping the economy to compete more successfully with cheaper, rival Asian
economies.”
Within Europe, UHY point out that Slovakia, the Czech Republic and
Romania have been very effective in taking advantage of the opportunities
presented by the single market. Meanwhile,
Spain, pulled out of recession in the third quarter of 2013 thanks to export
growth, and could potentially see its trade position improve in the future.
Georg Stöger of AUDITOR, UHY member
firm in the Czech Republic and Slovakia
said:
“Slovakia in particular has been very effective in making the most of its
EU membership and still relatively low labour costs. Its government has pursued a liberalisation
agenda, and thanks to its traditional strengths in manufacturing, it’s becoming
an increasingly important location for international businesses.”
“Currently countries like the Czech Republic, Romania and Slovakia all
benefit from fairly low labour costs. As
they continue to build up their skills base, improve infrastructure and reduce
local bureaucracy they could become formidable competitors, especially if they
are able to make the transition from trading within the EU to trading
globally.”
Would-be Chinese and American multinationals held back
by tax policy
While China did far better overall than the USA, with an overall score of
4.6 out of 10, both of the world’s two largest economies’ scores - were also
brought down by the high taxes their governments impose on corporates
‘repatriating’ overseas profits.
UHY says that these taxes reduce the incentive for businesses to set up
subsidiaries overseas, particularly for SMEs for whom the costs of setting up
international operations would be proportionately more expensive. Just under half of the countries in the study
imposed no tax on repatriated dividends at all.
Rick David added: “American firms are household names around the world
but actually our taxation system is very poorly geared towards encouraging US
companies from growing overseas, with the highest tax on ‘repatriated’ profits
of any country in the study.”
Rankings
showing 27 countries’ ability to take advantage of future globalisation of
trade
Ranking
|
Country
|
Marks out of 10
|
Ranking
|
Country
|
Marks out of 10
|
|
1
|
Germany
|
6.4
|
15
|
Russia
|
4.7
|
|
2
|
Slovakia
|
6.3
|
15
|
Australia
|
4.7
|
|
3
|
Netherlands
|
6.0
|
17
|
China
|
4.6
|
|
3
|
New Zealand
|
6.0
|
17
|
Uruguay
|
4.6
|
|
3
|
United Kingdom
|
6.0
|
17
|
Spain
|
4.6
|
|
6
|
Denmark
|
5.4
|
20
|
Mexico
|
4.4
|
|
7
|
France
|
5.3
|
21
|
Canada
|
4.3
|
|
8
|
Czech Republic
|
5.1
|
21
|
Austria
|
4.3
|
|
8
|
India
|
5.1
|
23
|
Israel
|
4.1
|
|
8
|
Croatia
|
5.1
|
24
|
Nigeria
|
4.0
|
|
8
|
UAE
|
5.1
|
25
|
Italy
|
3.7
|
|
12
|
Romania
|
5.0
|
25
|
United States
|
3.7
|
|
12
|
Brazil
|
5.0
|
27
|
Japan
|
3.0
|
|
12
|
Ireland
|
5.0
|
Notes:
Countries’
overall scores are based on their rankings for the detailed measures included
in the study.
Data
drawn from: the World Bank, World Trade Organisation, International Labour
Organisation and national governments.Full Report
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