MARK MACDONALD
BRITISH COLUMBIA – Tax rates make an incredible difference when it comes to decision time for investors and companies.
U.S. President Joe Biden’s recent push to get Group of Seven countries to agree to implement a minimal global corporate tax rate of at least 15 per cent was shot down in flames, to the surprise of mostly no-one. Can anyone see the world’s most powerful economic nations agreeing to something that could make them competitively deficient to the U.S.? Not in this lifetime.
It was believed that Biden’s request would allow him to raise the U.S. corporate tax rate to 28 per cent, after former President Donald Trump dropped it from 35 to 21 per cent. It probably won’t stop the Democrats from raising the tax bar, but they’ll have to do it all on their own.
Taxes are the bane of business’ existence. Despite politicians cries for having corporations “pay their fair share”, owners and shareholders are acutely aware of how much tax they already pay to various levels of government, payroll deductions and employee benefits. It seems like a never-ending stream, stemmed only by sharp managers, pencil-sharpening accountants and on-the-ball lawyers.
Which, altogether, makes the opportunity for making investments – and profits – in other, less taxed jurisdictions, even more attractive. That’s why multinational corporations seek other landing spots for their corporate head offices.
We need not look elsewhere than our own backyard to witness the benefits of lower-than-usual taxation. Does anyone think that British Columbia’s film industry would exist to any extent without significant tax credits, and an attractive, lower Canadian dollar against their U.S. counterpart? The combination of those two factors have been THE reason that this province is home to a large number of film production companies that call BC “home”.
That works in the U.S. as well. The Longmire series, for example, which the script says is located in Wyoming, was actually filmed in New Mexico, where it’s tax rate was 10 per cent less than the northern state.
Casting one’s eyes to the sporting world, it is becoming painfully evident that a stronger American dollar and nonexistent state taxes are making National Hockey League teams in Nevada, Texas and Florida increasingly attractive destinations for players. Including Canadian born skaters, choosing warmer and friendlier tax climes as great alternatives to much higher tax rates in BC, Ontario and Quebec. Not to mention the ability to enjoy life outside the rink due to less concentrated, and invasively rabid fan bases.
Tax advantages are just that, significant reasons for other cities, regions, provinces, states and countries to attract investment they otherwise wouldn’t get.
Ireland is a great case, as it’s low corporate tax rate was a major reason why corporations decided to set up shop there, the most specific cause of what is called “Ireland’s Economic Miracle”.
It’s why towns like Langford enjoy continual investment, despite recessionary times. Mayor Stew Young announced a significant tax reduction for developers prior to the most recent recession, and Langford was able to sail through rough economic waters with positive growth.
It’s also an opportunity that investment-welcoming First Nations can take advantage of, since their smaller bureaucracies can offer lower start-up costs and streamlined regulations to developers, providing an option to locating in multi-level government layers in other cities and towns.
Taxes aren’t the only reason, but they are major factors in attracting, and repelling investment. Even if politicians are loathe to support corporations, eyeing them with suspicion as they report profits, they are forced to recognize that those businesses create jobs, which means voters.
Thankfully there are competitive alternatives for corporations to weigh before making decisions about where to invest and build. Even if they choose not to locate in other countries, at least the threat of doing so restrains governments from raising taxes out of sight to keep some of these companies at home.
Mark MacDonald is President of Communication Ink Media & Public Relations Ltd. and can be reached at mark@communicationink.ca
