Non-manufacturing Operations2 (Leased Facilities) Manufacturing Operations1 (Owned Facilities)
F. Financing Costs
The base interest rates used in this study,
representing typical cash deposit rates and secured commercial borrowing rates in each country in Q4 2007, are illustrated in Exhibit 5.8. These rates are significantly higher than those in the 2006 edition of Competitive Alternatives, reflecting higher inflation rates and tighter credit conditions than in 2005. For operations in volatile industries or with limited fixed assets to offer as security, additional interest- rate premiums have been added to these base borrowing rates, as appropriate.
G. Non Income-based Taxes
1. Property-based Taxes
a) Manufacturing Operations
For manufacturing operations that own their own premises, property taxes typically account for about 2 percent of location-sensitive costs.
Property taxes include not only taxes on land and buildings, but also (where applicable) on machinery and equipment, inventory, and other physical assets. Exhibit 5.9 illustrates the average property taxes paid in each country, expressed in US dollars per square foot of building space. The lowest property tax costs for manufacturing operations are in Mexico followed by Australia, the Netherlands, and Italy.
National results should be interpreted with caution, as property taxes can vary dramatically, based on local tax rates and property values.
b) Non-manufacturing Operations
For non-manufacturing operations occupying leased office space, property taxes on real estate are typically levied on the landlord. Any amount of this tax passed on to the tenant is captured indirectly as part of total office leasing costs, but is not separately identifiable. As Exhibit 5.9 illustrates, the non-manufacturing operations examined are still subject to direct property taxes on equipment and/or business occupancy in six of the countries examined. In Germany, the United
Kingdom, and Mexico, and Australia, none of the
cities examined levy taxes on equipment or business occupancy.
1 Average for seven manufacturing operations included in the overall results. (Refer to Exhibit 1.3.) 2 Average for five non-manufacturing operations included in the overall results. (Refer to Exhibit 1.3.)
1 Average over ten years.
2 Range for those locations where capital taxes apply.
EUROPE France – Germany – Italy – Netherlands – United Kingdom – NORTH AMERICA Canada2 <$1 – $56 <0.01% – 0.35% Mexico – United States2 <$1 – $45 <0.01% – 0.29% ASIA PACIFIC Australia – Japan2 $24 – $30 0.12% – 0.16%
EXHIBIT 5.10
Capital Taxes
US$'000 per Annum1 Percent of Location-sensitive
Costs nil nil nil nil nil nil nil
2. Capital Taxes
As illustrated in Exhibit 5.10, and detailed below, capital taxes only apply in certain countries and regions:
y
In Canada, the former national capital tax has been eliminated, as have some provincial capital taxes. A number of provinces are currently in the process of phasing out their capital taxes on corporations other than financialinstitutions. By the end of 2012, Manitoba is the only province expected to have a general capital tax.
y
In the United States, capital taxes apply (in various forms) in about 40 percent of all locations examined, including four of the 15 locations selected for international comparison.y
In Japan, prefectural and municipal capital taxes apply in all three locationsconsidered in this study.
3. Transaction Taxes
Transaction taxes include:
y
Non-refundable sales taxesNon-refundable sales taxes apply in most US states and in half of all Canadian provinces.
Where non-refundable sales taxes apply, exemptions are generally available for many of the costs incurred by a manufacturer, to avoid the compounding of taxes into the price of goods at each stage of the production process. The tax burden in the locations where sales taxes apply is typically between US $50,000 and US $200,000 per annum, or approximately 0.3 to 1.2 percent of location-sensitive costs.
y
Gross receipts taxes. Gross receiptstaxes apply in a small but growing number of jurisdictions in the United States, either instead of, or in addition to, state or local income taxes. Three of the 15 US cities included in the US average for the international comparisons are subject to gross receipts taxes.
The tax burden in the locations where gross receipts taxes apply is typically up to US $130,000 per annum, or up to approximately 0.8 percent of location- sensitive costs.
y
Refundable value-added taxes (VAT or GST) For this analysis, value-added taxeshave been excluded, since their refundable nature means there is no net cost to a business once input tax credits (refunds) have been claimed. Although these taxes impose a cost on companies in terms of cash flow timing and administration, such costs are not considered material to this study.
4. Local Business Taxes
Sundry local business taxes, in a wide variety of forms, also apply in many of the
jurisdictions studied, and are included in the total cost calculations for this study.
1 Net of government grants and incentives.
2 Average for seven manufacturing operations included in the overall results. (Refer Exhibit 1.3.) For Germany and Japan, such results are not meaningful due to marginal average profitability, and instead, results have been shown for the single industry reporting the highest net income before tax (and therefore the most “normalized” income tax calculation). 3 Average for two R&D operations included in the overall results. (Refer Exhibit 1.3.) Most activities represent tax-eligible
R&D activities. Negative effective income tax rates are the result of R&D refundable income tax credits, grants, or other incentive programs. These amounts may be substantial in some countries or locations.
4 Average for one operation included in the overall results. (Refer Exhibit 1.3.) Results for software operations are generally consistent with these rates.
5 Effective tax rates for service operations are very high due to the limited deductibility of payroll costs for regional income tax (IRAP) purposes.
EUROPE France 30.2% 4 -25.7% 2 33.7% 6 Germany 37.8% 8 33.5% 7 32.3% 5 Italy5 42.1% 9 49.5% 10 58.5% 10 Netherlands 18.8% 1 -568.2% 1 26.2% 2 United Kingdom 30.9% 5 -13.8% 3 26.0% 1 NORTH AMERICA Canada 24.0% 2 -4.4% 4 29.6% 3 Mexico 27.7% 3 32.9% 6 34.7% 7 United States 33.2% 7 36.0% 8 38.4% 8 ASIA PACIFIC Australia 31.4% 6 11.0% 5 31.7% 4 Japan 44.7% 10 37.7% 9 43.8% 9